PNC Infratech has developed itself as one of the premier EPC players in the road sector over the years and has also diversified its revenue stream to other segments, including water supply and irrigation, said brokerage firm Axis Securities in its latest note.
The brokerage said the company is well-positioned to capitalise on the government’s ambitious plans to develop highways and expressways. The National Highways Authority of India (NHAI) is prioritising greenfield expressways, offering significant potential in both EPC and HAM modes.
Government initiatives like Bharatmala Pariyojana, Sagarmala, the Atal Mission for Rejuvenation and Urban Transformation, the Jal Jeevan Mission, and the Prime Minister’s Gati Shakti National Master Plan are set to boost the infrastructure sector, said Axis Securities.
The increased capital budget for key infrastructure components in the Union Budget 2022–23 reflects the government’s commitment to infrastructure development and its goal of becoming a $5 trillion economy by 2025.
In the Union budget, allocation to highways grew from about ₹1.99 lakh crore to ₹2.70 lakh crore, representing a 36% YoY growth. NHAI’s funding allocation more than doubled during this period as well.
Aside from investments in roads and highways, this year’s budget also puts a focus on river connection projects, which will increase water availability across various regions, and comparable irrigation projects, it noted.
The government’s focus on the Jal Jeevan mission to achieve the goals of ‘HarGharPaniGharGharPani’ and ‘HarGharNal Se Jal’ will also provide ample opportunities in the drinking water sector in the states where the PNC Infratech has already penetrated, the brokerage underscored.
Further, NHAI announced a new system to speed up the payment of compensation for land acquisition to property owners, under which the funds will be transferred directly to the beneficiary’s accounts via the public finance management system. This will also save thousands of crores from being blocked in banks for months, which could be used for construction, it highlighted.
As far as asset monetisation is concerned, the brokerage points out that the government has monetised assets worth ₹26,000 crore till February 23 against the target of ₹1.6 lakh crore, while a proposal pipeline aggregating to ₹1.23 lakh crore is currently at various stages of processing.
With ₹88,000 crore realised in FY22, the overall monetisation value realised in FY22 and FY23 is now ₹1.14 lakh crore, which is 19% of the ₹6.0 lakh crore target set under the National Monetisation Pipeline (NMP) over four years (from FY22 to FY25).
The brokerage highlighted PNC's impressive order book, which stood at over ₹20,500 crore by the end of FY23. In the same fiscal year, PNC secured orders worth over ₹4,800 crore, including 4 HAM projects and 1 EPC project. Roads and highway projects comprised 67% of the total order book, while water supply and irrigation contributed the remaining 33%.
Along with the government’s thrust on developing highways and expressways, and an asset monetisation plan, the brokerage expects the company to report revenues, EBITDA, and APAT growth of 12%, 11%, and 13% CAGR, respectively, over FY23–25E.
Thus, it continued with its 'buy' rating on the stock and valued its EPC business at 11.5x FY25E EPS and HAM portfolio at 1x book value to arrive at a target price of ₹435 apiece, implying an upside of 18.20% from the stock's latest closing price.
15 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
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