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View: Strong execution to continue; maintain Buy The revenue grew 41.7% YoY to `10.8 bn (30.7% above our estimate), due to a pick up in execution in key projects. The EBITDA margin was down 715 bps YoY to 14.1% (in line with our estimate). The core EBITDA margin (excluding early completion bonus) was up 32bps YoY to 14.1%. The reported PAT rose 25.5% YoY to `1.4 bn, primarily due to a tax write back of `658 mn in Q4FY19, leading to a decrease in the tax rate to 20.8%, vs. 18.8% in Q4FY18. Adjusting for MAT credit and tax write back, Adj. PAT was up 11.0% YoY to `741 mn (115.6% above our estimate). We increase our revenue estimates by 6.7%/ 5.1% for FY20E/ FY21E to factor a pick up in execution across the projects. We increase our core EBITDA margins by 26/ 73 bps for FY20E/ FY21E to factor FY19 results. Accordingly, we increase our Adj. PAT estimates by 18.7%/ 20.9% for FY20E/ FY21E. We expect debt to rise by `6.1 bn over FY19-21E, despite factoring in a marginal reduction in NWC (% of revenue) to 31.0%/ 30.6% (FY20E/ FY21E), vs. 31.8% (FY19), due to a robust growth in revenue, a capex of `4 bn (over FY19-21E), and an equity investment of `6 bn (over FY19-21E) in seven HAM projects. We have excluded the Ghaziabad-Aligarh BOT project from valuation, as PNC has signed an agreement to sell the same to Cube Highways and Infrastructure Pte. Ltd. We expect revenue/ Adj. PAT CAGR of 38.0%/ 29.1% over FY19-21E. Accordingly, we maintain Buy, with an upward revised SOTP of `283

(Exhibit 2).

Robust order book of `131.5 bn (4.2x FY19 revenue) PNC’s order book stands at `122.1 bn as on FY19. PNC won the Challakere-Hariyur HAM (EPC cost ~`9.35 bn) in FY19 (not included in order book). Considering this, the order book stands at `131.5 bn (4.2x FY19 revenue). We factored a fresh inflow of `55 bn each in FY20E/ FY21E, vs. management guidance of `70-80 bn in FY20E. PNC expects to receive appointed date for remaining Challakere-Hariyur HAM project in Q2FY20E. Q4FY19 Result (` Mn)

Particulars Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%)

Revenue 10,757 7,589 41.7 7,270 48.0 Total Expense 9,245 5,980 54.6 6,249 48.0

EBITDA 1,512 1,609 (6.0) 1,021 48.0

Depreciation 282 217 30.1 241 16.9

EBIT 1,230 1,392 (11.7) 780 57.7

Other Income 123 66 84.5 68 79.9

Interest 194 85 127.2 187 3.6

EBT 1,158 1,373 (11.7) 661 75.3

Tax (241) 258 (193.4) 187 (228.7)

RPAT 1,399 1,115 25.5 474 195.5

APAT 741 668 11.0 429 73.0

(bps) (bps) Gross Margin (%) 31.8 35.5 (374) 31.5 29

EBITDA Margin (%) 14.1 21.2 (715) 14.0 1

NPM (%) 6.9 8.8 (191) 5.9 100

Tax Rate (%) (20.8) 18.8 (3961) 28.3 (4916)

EBIT Margin (%) 11.4 18.3 (692) 10.7 70

CMP ` 187

Target / Upside ` 283 / 52%

BSE Sensex 39,667

NSE Nifty 11,925

Scrip Details

Equity / FV ` 513mn / ` 2

Market Cap ` 48bn

US$ 688mn

52-week High/Low ` 198/` 122

Avg. Volume (no) 2,20,973

NSE Symbol PNCINFRA

Bloomberg Code PNCL IN

Shareholding Pattern Mar'19(%)

Promoters 56.1

MF/Banks/FIs 21.4

FIIs 6.3

Public / Others 16.3

Valuation (x)

FY19A FY20E FY21E

P/E 19.8 14.7 11.9

EV/EBITDA 10.6 7.8 6.7

ROE (%) 12.9 14.6 15.3

RoACE (%) 18.2 15.3 14.9

Estimates (` mn)

FY19A FY20E FY21E

Revenue 30,969 48,191 59,007

EBITDA 4,573 6,858 8,401

PAT 3,249 3,345 4,021

EPS (`) 9.4 12.7 15.7

VP Research: Shravan Shah Tel: +91 22 40969749

E-mail: [email protected]

Associate: Maulik Shah Tel: +91 22 40969775

E-mail: [email protected]

PNC Infratech

Buy

May 27, 2019

May 27, 2019 2

Key earnings takeaways

Order awarding in the road segment should start by Jun’19. PNC will bid for 35 projects worth `360 bn. Bundelkhand expressway (`90 bn) and Gorakhpur link expressway (`30 bn) EPC tenders to open on 27-28th Jun’19.

Will focus only on road segment, no plans to bid for airport segment.

Fund/ Non-Fund based limits stand at `7.5 bn/ `33.5 bn.

Received appointed date of Chakeri-Allahabad/ Aligarh-Kanpur on 12-Jan’19/ 21-Feb’19. Expect Challakere-Hariyur appointed date in Sept’19 where 80% land is available.

Expect revenue growth of 45-50% in FY20E, with order inflow of `70-80 bn (50% EPC and 50% HAM). EBITDA margins guidance of 13.75 – 14% for FY20E.

Expect debtor days/ working capital days of 95/ 110 days in FY20E.

Gross debt levels of `4.75 bn, cash of `1.1 bn in FY20E. Capex guidance of `1.2-1.25 bn for FY20E.

Total equity requirement of `6 bn (`2.8 bn/ `3.2 bn in FY20E/ FY21E) for seven HAM projects, which will be met through internal accruals.

Tax rate guidance of 30% in FY20E.

Q4FY19 Toll revenue – MP highways `143 mn, Kanpur Ayodhya `998mn, Kanpur highway `239 mn, Narela `104.8 mn, Bareilly Almora `95 mn, Rae Bareli Jaunpur `321.6 mn, Ghaziabad Aligarh - `530 mn.

PNC has put a claim of ~`13 bn for its three BOT projects where outcome isexpected in next 10-15 months.

Early completion bonus on Aligarh Moradabad – PNC completed the EPC project 73 days ahead of schedule, which entitles it to `141.1 mn early completion bonus.

Sale of Ghaziabad-Aligarh BOT Toll project – PNC has a sign agreement along with its JV partner to sell its 35% equity stake to Cube Highways and Infrastructure Pte. Ltd on 4 May’19 at an EV of `18.3 bn. PNC will receive `2.58 bn vs. its total investment of `2.75 bn. Moreover, PNC will receive its outstanding debtors `620 mn. Total consideration of `3.2 bn to be received by PNC in next 2-3 months.

Narela Arbitration Award – PNC Delhi Industrialinfra Private Limited (100% subsidiary) received arbitration award of `1.89 bn and received `1.46 bn on 17 May’19.

May 27, 2019 3

Q4FY19 Performance (Standalone)

Source: Company, DART

SOTP Valuation

Component Valuation Method ` /sh %

Standalone cons business 15x FY21E EPS 235.1 83.1

Road BOTs 1xBV 15.4 5.4

HAM projects 1xBV 32.4 11.5

Total 282.9 100.0

CMP 186.6

Potential upside (%) 51.6

Source: DART, Company

Particulars (` mn) Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%) FY19 FY18 YoY (%)

Revenue 10,757 7,589 41.7 7,270 48.0 30,969 18,566 66.8 Material consumed 7,342 4,895 50.0 4,983 47.3 21,140 12,242 72.7

Employees cost 544 376 44.7 552 (1.4) 1,923 1,240 55.1

Other expenditure 1,360 709 91.9 714 90.4 3,333 1,896 75.8

Total expenditure 9,245 5,980 54.6 6,249 48.0 26,395 15,378 71.6

EBITDA 1,512 1,609 (6.0) 1,021 48.0 4,573 3,188 43.4

Depreciation 282 217 30.1 241 16.9 922 772 19.5

Operating profit 1,230 1,392 (11.7) 780 57.7 3,651 2,416 51.1

Other income 123 66 84.5 68 79.9 430 230 86.9

EBIT 1,352 1,459 (7.3) 848 59.4 4,081 2,646 54.2

Interest 194 85 127.2 187 3.6 641 307 108.6

EBT 1,158 1,373 (15.7) 661 75.3 3,440 2,339 47.1

Current tax 389 293 32.8 232 67.5 998 499 99.9

Deferred tax 28 5 436.7 0 - 20 4 371.7

MAT Credit - (40) - (45) - (169) (176) -

Tax for earlier years (658) - - - - (658) (498) -

Net income 1,399 1,115 25.5 474 195.5 3,249 2,510 29.4

Adjustments (658) (447) - (45) - (1,004) (1,082) -

Adjusted net income 741 668 11.0 429 73.0 2,245 1,428 57.2

EPS (`) 2.9 2.6 11.0 1.7 73.0 8.8 5.6 57.2

(bps) (bps) EBIDTA Margin (Excl. O.I.) 14.1 21.2 (715) 14.0 1 14.8 17.2 -241

EBIDTA Margin (Incl. O.I.) 15.2 22.1 (689) 15.0 21 16.2 18.4 -226

NPM (%) 6.9 8.8 (191) 5.9 100 7.2 7.7 -44

Tax/PBT (%) (20.8) 18.8 - 28.3 - 5.6 (7.3) -

Material cons/Revenue (%) 68.2 64.5 374 68.5 (29) 68.3 65.9 232

May 27, 2019 4

Order book trend 38.0% Revenue CAGR (FY19-21E)

Source: Company, DART Source: Company, DART

Factored in marginal dip in working capital 29.1% Adj. PAT CAGR (FY19–21E)


Despite rise, comfortable Net D:E Return ratios trend


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RoE (%) RoCE (%)

May 27, 2019 5

Profit and Loss Account

(` Mn) FY18A FY19A FY20E FY21E

Revenue 18,566 30,969 48,191 59,007

Total Expense 15,378 26,395 41,333 50,607

COGS 12,242 21,140 34,071 41,659

Employees Cost 1,240 1,923 2,596 3,116

Other expenses 1,896 3,333 4,666 5,832

EBIDTA 3,188 4,573 6,858 8,401

Depreciation 772 922 1,246 1,506

EBIT 2,416 3,651 5,612 6,895

Interest 307 641 850 1,100

Other Income 230 430 234 220

Exc. / E.O. items 0 0 0 0

EBT 2,339 3,440 4,996 6,015

Tax (171) 191 1,651 1,994

RPAT 2,510 3,249 3,345 4,021

Minority Interest 0 0 0 0

Profit/Loss share of associates 0 0 0 0

APAT 1,428 2,414 3,246 4,021

Balance Sheet

(` Mn) FY18A FY19A FY20E FY21E

Sources of Funds

Equity Capital 513 513 513 513

Minority Interest 0 0 0 0

Reserves & Surplus 17,554 20,639 23,829 27,696

Net Worth 18,067 21,152 24,342 28,209

Total Debt 1,697 3,750 6,684 9,804

Net Deferred Tax Liability (20) (5) (42) (88)

Total Capital Employed 19,744 24,897 30,983 37,925

Applications of Funds

Net Block 4,064 6,155 6,897 7,392

CWIP 111 62 20 20

Investments 4,948 5,730 7,851 11,051

Current Assets, Loans & Advances 18,721 25,203 35,240 42,700

Inventories 1,758 4,036 6,407 8,097

Receivables 6,900 6,154 10,602 12,982

Cash and Bank Balances 1,473 3,094 1,285 1,378

Loans and Advances 0 0 0 0

Other Current Assets 8,590 11,919 16,947 20,243

Less: Current Liabilities & Provisions 8,100 12,254 19,025 23,238

Payables 4,628 4,737 7,440 9,109

Other Current Liabilities 3,472 7,516 11,586 14,129

Net Current Assets 10,620 12,950 16,215 19,462

Total Assets 19,744 24,897 30,983 37,925

E – Estimates

May 27, 2019 6

Important Ratios

Particulars FY18A FY19A FY20E FY21E

(A) Margins (%)

Gross Profit Margin 34.1 31.7 29.3 29.4

EBIDTA Margin 17.2 14.8 14.2 14.2

EBIT Margin 13.0 11.8 11.6 11.7

Tax rate (7.3) 5.6 33.1 33.1

Net Profit Margin 7.7 7.8 6.7 6.8

(B) As Percentage of Net Sales (%)

COGS 65.9 68.3 70.7 70.6

Employee 6.7 6.2 5.4 5.3

Other 10.2 10.8 9.7 9.9

(C) Measure of Financial Status

Gross Debt / Equity 0.1 0.2 0.3 0.3

Interest Coverage 7.9 5.7 6.6 6.3

Inventory days 35 48 49 50

Debtors days 136 73 80 80

Average Cost of Debt 18.1 23.5 16.3 13.3

Payable days 91 56 56 56

Working Capital days 209 153 123 120

FA T/O 4.6 5.0 7.0 8.0

(D) Measures of Investment

AEPS (`) 5.6 9.4 12.7 15.7

CEPS (`) 8.6 13.0 17.5 21.5

DPS (`) 0.6 0.6 0.6 0.6

Dividend Payout (%) 11.3 6.4 4.8 3.8

BVPS (`) 70.4 82.5 94.9 110.0

RoANW (%) 8.9 12.9 14.6 15.3

RoACE (%) 15.9 18.2 15.3 14.9

RoAIC (%) 16.7 20.4 16.6 15.5

(E) Valuation Ratios

CMP (`) 187 187 187 187

P/E 33.5 19.8 14.7 11.9

Mcap (` Mn) 47,870 47,870 47,870 47,870

MCap/ Sales 2.6 1.5 1.0 0.8

EV 48,094 48,526 53,269 56,296

EV/Sales 2.6 1.6 1.1 1.0

EV/EBITDA 15.1 10.6 7.8 6.7

P/BV 2.6 2.3 2.0 1.7

Dividend Yield (%) 0.3 0.3 0.3 0.3

(F) Growth Rate (%)

Revenue 9.9 66.8 55.6 22.4

EBITDA 44.3 43.4 50.0 22.5

EBIT 44.1 51.1 53.7 22.9

PBT 20.6 47.1 45.2 20.4

APAT (6.0) 69.0 34.4 23.9

EPS (6.0) 69.0 34.4 23.9

Cash Flow

(` Mn) FY18A FY19E FY20E FY21E

CFO 3,215 3,626 148 3,208

CFI (1,446) (3,263) (3,887) (4,980)

CFF (650) 1,258 1,929 1,866

FCFF 1,897 716 (1,852) 1,208

Opening Cash 355 1,473 3,094 1,285

Closing Cash 1,473 3,094 1,285 1,378

E – Estimates

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

Feb-18 Accumulate 199 168

Mar-18 Buy 199 160

May-18 Buy 212 169

Aug-18 Buy 230 167

Nov-18 Buy 214 150

Feb-19 Buy 180 137

*Price as on recommendation date

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kartik Sadagopan VP - Equity Sales [email protected] +9122 4096 9762

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Ashwani Kandoi AVP – Equity Sales [email protected] +9122 4096 9725

Lekha Nahar Manager – Equity Sales [email protected] +9122 4096 9740

Equity Trading Designation E-mail

P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707

Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702

Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

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(Rs) PNCL Target Price

Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013

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Analyst(s) Certification The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil)

II. Disclaimer: This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited. and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness. Dolat Capital Market Private Limited. may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions.

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This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer/Entity as informed by Dolat Capital Market Private Limited. from time to time.

Dolat Capital Market Private Limited.

Corporate Identity Number: U65990DD1993PTC009797 Member: BSE Limited and National Stock Exchange of India Limited.

SEBI Registration No: BSE - INB010710052 & INF010710052, NSE - INB230710031& INF230710031, Research: INH000000685 Registered office: Office No. 141, Centre Point, Somnath, Daman – 396 210, Daman & Diu

Board: +9122 40969700 | Fax: +9122 22651278 | Email: [email protected] | www.dolatresearch.com

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