From our meeting with PNC Infratech’s management and our Dausa-Lalsot site visit, we returned upbeat. These reinforced our belief that nothing is wrong with PNC’s execution, and the recent underperformance has reasons beyond management control. RoW issues, though now largely settled, have made management more vigilant. The good thing is that the balance sheet is still ship-shape and gives the company an edge over some of its peers. Hence, we retain our Buy recommendation. Past RoW issues have turned management more vigilant: Management aims at inflows of Rs 50 bn in Q4 (closing the year with an OB of Rs 150 bn), with another Rs 80 bn in FY19, but will be more prudent now when bidding for projects. Aims at inspiring growth: With appointed dates in place for most of its delayed projects, management guided to Q4FY18 revenue of Rs 7 bn, and Rs 27 bn in FY19. FY19 guidance has more potential if the recently secured Chakeri-Allahabad is appointed shortly.
Mindful of leverage: Mgmt sees internal accruals sufficing for its range of hybrid annuities (Rs 6 bn of equity needed) and OB (capex). It does not intend to breach the 0.5x net-debt-to-equity for standalone entity. Valuation: At the ruling price, the stock quotes at PBV of 2.3x FY18e, 2.1x FY19e and 1.9x FY20e. At the target price of Rs 211, the implied exit PBV is 2.5x FY20e. Excl. BOTs, the stock quotes at EV/Ebitda of 9.1x FY19e and 7.8x FY20e.
