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PNC Infratech Enters Strong Phase Of Revenue Growth

Infra News - Published on Mon, 17 Jun 2019

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Financial Express reported that we met with PNCL’s management. Broadly, we found that the meeting confirmed our investment thesis for the stock of: a) high growth but coupled with strong focus on OCF generation, b) ability to maintain low standalone gearing levels net debt of only 1.0 billion and with strong OCF generation and limited capex requirement is unlikely to shoot up materially. PNCL has been awarded arbitration claims of INR 1.4 bn against the National Highway Authority of India and INR 0.31 billion from a state road project. We expect these claims to accrue in FY20F and will directly flow upwards to the EBITDA level. Further, there will be receipt of 140 m as early completion bonus for the Aligarh Moradabad project.

In addition to the above, which includes the P&L impact, there are receipts of 0.85 billion as repayment of debt by the Narela subsidiary following the favourable arbitration ruling against Delhi and 3.0 billion from the sale of the Ghaziabad Aligarh Expressway. Cumulatively, these account for 5.7 billion in cash inflows, which on our estimates largely suffice for the 6.0 billion equity commitment for HAM assets over the next 24 months.

Management expects OCF generation of 16 billion over the next three years. We have observed that historically PNCL has generated 6% OCF to sales and even with an improved assumption of 10% OCF to sales we estimate that this will entail 160 billion of revenues over the next three years. Thus we believe PNCL is entering into a phase of strong multi-year revenue growth.

Further, with 6.0 billion equity committed for existing HAM projects and capex of 4.0 billion for the next three years, we estimate that FCF of 10 billion can be generated. This FCF cushion should allow PNCL to bid for additional HAM projects where competition is low and EBITDA margins are significantly better.

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Posted By : Mohan Sharma on Mon, 17 Jun 2019
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