PNC Infra Nomura’s preferred stock pick in road EPC space

Mumbai: Foreign brokerage Nomura said is its preferred pick in the road engineering, construction and procurement space due to a combination of strong execution, robust balance sheet and relatively inexpensive valuations. Retaining a buy recommendation, Nomura has lifted target price to Rs 385 from Rs 364 on stronger order inflow prospects and execution outlook.

“PNC has delivered ahead of management guidance with FY21 revenue at Rs 4,930 crore, exceeding the FY20 level of Rs 4,877 crore…with a strong order book of Rs 1650 crore at the end of FY21, PNC can deliver at least two years of strong revenue growth, significantly ahead of consensus estimates,” said Nomura.

The brokerage said PNC is under-valued despite its strong net cash balance sheet. Nomura estimates revenue of PNC Infratech to grow 35% in FY22 and 20% in FY23.

“At present, the consensus is significantly under-estimating the topline growth potential of the company over FY22/FY23,” said Nomura.

The brokerage said PNC’s net cash balance sheet will allow the company to accomodate more order inflows.

“PNC’s management estimates equity needs of Rs 860 crore for its hybrid annuity model projects which we estimate is funded by internal cash generation. Further, with a significant amount of unused non-funded working capital limits, we believe PNC has a higher capacity to accommodate higher order inflows, in line with management estimate of Rs 8000 crore-Rs 9000 crore for FY22,” said Nomura.