Recommendation From Construction Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year
PNC Infratech
A BET ON CONSTRUCTION SECTOR
HERE IS WHY
Robust financial performance
Strong order book
Strong project execution capabilities
Construction is an important sector, which contributes greatly in the economic growth of a nation. The government is showing high interest in this investment-leading industry. PNC Infratech Limited (PNCIL) is one such construction company, which has been playing a significant role in the country’s progress. It is engaged in the construction of highways, airport runways, bridges, flyovers, etc. The company has been entrusted with the development of high value EPC turnkey projects from core organizations such as Ministry of Defence, Government of India, etc.,
On a consolidated basis, the total income of PNC Infratech from operation rose by 66.36 per cent to Rs.1,524.52 crores in the first quarter of FY20 from Rs.916.39 crores during the same period in FY19 due to a strong execution of projects in that quarter. EBITDA grew by 24.84 per cent to Rs.351.04 crores in June quarter of FY20 from Rs.281.17 crores in the same period of FY19. The EBITDA margin stood at 23.02 per cent in June quarter of FY20 as against 30.68 per cent in the same quarter of FY19. The net profit climbed
up by 51.78 per cent to Rs.178.51 crores in the June quarter of FY20 from Rs.117.61 crores over the same period in FY19. The best part of the company's performance is its tight control over the working capital cycle, which has come down from 129 day in March '17 quarter to 70 days in June '19 quarter.
Currently, PNCIL is working on 9 EPC projects and 7 HAM projects, of which, 3 projects are ordered by NHAI and 2 projects are tendered bythe Uttar Pradesh
Roads Authority (UPEIDA). As on June 2019, the total order book value of the company stood at Rs.10,950 crores and in August end, it received an order worth Rs.1,062 crores for a National Highway EPC Project from NHAI. The company has submitted bids of Rs.9,000 crores and Rs.3,000 croresfor Bundelkhand Expressway project and Gorakhpur Link Expressway project, respectively, to UPEIDA. This step points towards the company’s strong order book and its efforts to strengthen it more. The gross toll collection totaled Rs.250 crore in June quarter of FY20.
In month of May, PNCIL received a provisional completion certificate for the Aligarh-Moradabad contract, executed on EPC mode, with the completion taking place 73 days ahead of the schedule. This entitles the company to an early completion bonus of Rs.14.1 crores, which is likely to be realized in the second half of FY20.
In August 2019, PNCIL received Rs.150 crores as the arbitration award for the NHAI EPC road project of GarhMukteshwar-Moradabad. The award was announced in September 2018 but was received in the second quarter of FY20 and will be included for in the revenue of Q2FY20. Such awards will help the company increase its other income, leading to profit maximization.
On the valuation front, the stock of PNCIL is trading at PE ratio 13.69x and ROE of 15.25 per cent. The valuation looks a bit expensive compared to its peers; however, looking at company's better margin and returns ratio, we believe it is good BUY for our readers.
