PNC is likely to be one of the major beneficiaries of the Jal Jeevan Mission. Buy for target price of Rs 350 (34% upside): ICICI Direct

Muted performance impacted by slower execution…

About the stock: PNC Infratech has established itself as a strong executor in the roads, water infra and airport runway segments. Additionally, superior execution capabilities via ownership of modern equipment and in-house teams enables PNC to deliver projects on time. PNC has executed 70 major infrastructure projects till date.

► Reported 30.3% revenue CAGR during FY17-22; operating margin was in the range of 13-15%

► Proficient execution, robust return ratios (RoCE: ~20%)

Q2FY23 Results: PNC reported a muted set of numbers during Q2FY23.

► Standalone revenue declined 3.3% YoY to Rs 1,561.1 crore albeit on the higher base, largely impacted by slowed execution pace owing to prolonged rains across majority of its project sites

► The EBITDA margin was at a normalised level of 13.3% (down 46 bps YoY) benefiting from a softening in commodity prices and better project mix. Effectively, EBITDA at Rs 207 crore, was down 6.6% YoY

► PAT was at Rs 131.1 crore, down 3.2% YoY

What should investors do? PNC’s share price has grown at ~7% CAGR over the past five years (from ~Rs 183 in November 2017 to Rs 261 levels in November 2022).

► We maintain our BUY rating on the company Target Price and Valuation: We value PNC at Rs 350/share. Key triggers for future price performance:

► PNC is likely to be one of the major beneficiaries of the thriving roads and water supply segment (Jal Jeevan Mission)

► Strong order book position, receipt of appointed date in most of its projects and execution pick-up are expected to translate to 11.7% topline CAGR over FY22-24E along with stable margins

► Planned monetisation of HAM/annuity assets

Alternate Stock Idea: Besides PNC, we like HG Infra in the EPC space.

► Strong execution, lean balance sheet and healthy order book

► BUY with a target price of Rs 700/share