PNC Infratech: Building the Future with Strong Execution and Growth Prospects
PNC Infratech has emerged as a formidable player in the infrastructure industry, particularly in roads and water segments. The company’s commitment to excellence, coupled with its modern equipment and in-house teams, positions it as a reliable executor of projects, consistently delivering them on time.
Impressive Financial Performance:
Over the years, PNC Infratech has showcased impressive financial growth. It reported a remarkable 30.6% revenue Compound Annual Growth Rate (CAGR) from FY18 to FY23. Operating margins have consistently hovered around 13-14%, demonstrating the company’s ability to maintain profitability. Notably, PNC has consistently achieved robust return ratios, with Return on Capital Employed (RoCE) averaging around 20%.
Key Investment Thesis:
Investors looking for a promising opportunity should take note of PNC Infratech for the following reasons:
- Strong Order Book:
- PNC boasts a robust order book, providing substantial revenue visibility. As of Q1FY24, its order book, including recently awarded projects (four Hybrid Annuity Model (HAM) and one Engineering, Procurement, and Construction (EPC) road project valued at ₹4,083 crore), stood at approximately ₹18,900 crore. This represents a substantial 2.6 times the book-to-trailing twelve months (TTM) revenues.
- The company has projected inflows of around ₹10,000 crore during FY24E, primarily driven by road projects (over 70%), with the rest expected to come from non-road segments such as water and railway. This strong order book visibility is expected to lead to a healthy revenue CAGR of approximately 13.5% from FY23 to FY25E, reaching ₹9,097 crore.
- Well-Funded HAM Projects:
- PNC is well-positioned to fund its HAM projects. As of Q1FY24, the company had infused ₹1,712 crore into its HAM projects, with a remaining equity requirement of ₹1,228 crore to be injected over the next three to four years. The company anticipates funding this equity from its robust internal accruals.
- PNC’s balance sheet remains strong, boasting a net debt-to-equity ratio of 0.17x as of Q1FY24, further enhancing its financial stability.
- Asset Monetization Strategy:
- PNC is actively exploring asset monetization opportunities. The company is in discussions with potential investors to monetize eleven HAM and one BOT project (Bareilly Almora), collectively holding debt of approximately ₹6,900 crore and equity of around ₹1,700 crore (seven operational; the rest likely to become operational in the next three to four months).
- Non-binding offers have been received from interested parties, and management expects the monetization process, including the receipt of funds, to conclude by the end of FY24. This strategic move will significantly enhance the company’s scalability.
Rating and Target Price:
Given PNC Infratech’s consistent execution and stable margin trajectory, the company is well-positioned for growth. The medium-term catalyst of asset monetization is expected to unlock capital and drive scalability.
- ICICI Direct Research assigned a BUY rating to PNC Infratech.
- Our target price for PNC is ₹460 per share, valuing its construction business at ₹373 per share (at 12x FY25 EPS) and HAM at 1x equity invested.
