PNC Infratech - Asset Monetisation, A Key Trigger Ahead: ICICI Direct

ICICI Direct Report

Key Investment Thesis:

Order book strong, provides healthy revenue visibility:

PNC Infratech Ltd.’s order book at the end of Q1 FY24, including the newly won projects (four hybrid annuity model and one engineering, procurement and construction road project worth Rs 4083 crore), was at ~Rs 18900 crore, 2.6 times book to trailing twelve months revenues.

Going ahead, the company has guided for inflows worth ~Rs 10,000 crore during FY24E driven by roads projects (70% plus) while remaining is likely from non-roads segments like water, railway, etc.

Given the orderbook visibility, we expect healthy revenue compound annual growth rate of ~13.5% over FY23-25E to Rs 9097 crore.

Well-placed to fund HAM projects:

As of Q1 FY24, PNC Infratech had infused Rs 1712 crore into its HAM projects. Going forward, it has balance equity requirement of Rs 1228 crore to be infused over the next three to four years.

Given the healthy operating cash flow generation., we expect the equity to be funded from the internal accruals. The company enjoys a healthy balance sheet with net debt to equity of 0.17 times as of Q1 FY24.

Asset monetisation on the anvil:

PNC Infratech is currently in discussions with potential investors to monetise its assets. Eleven HAM and one built-operate-transfer project (Bareilly Almora) are under block to monetise having debt of ~Rs 6900 crore and equity of ~Rs 1700 crore (seven operational; rest likely to be operational by next three to four months).

It has received non-binding offers from the interested parties. The management expects the process of monetisation (including receipt of money) to conclude by FY24-end with receipt of amount. With monetisation fructification, company’s scalability would improve drastically, going ahead.

Rating and target price

• PNC Infratech has exhibited healthy execution along with a stable margin trajectory. Medium term trigger is asset monetisation, which would free up capital and drive scalability.

• We assign 'Buy' rating.

• We value PNC Infratech at Rs 460 per share, valuing its construction business at Rs 373/share (at 12 times FY25 earnings per share) and HAM at one time equity invested.

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