| Thursday, 7 May 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
PNC Infratech Focused on road projects Company's expertise is in road EPC and BOT projects around northern and central India
PNC is executing 23 infrastructure projects with value of contracts including escalation costs of around Rs 7849.70 crore, up 29% over end March 2014. About 95% of the total contract value comprises roads, while airport runways comprise 2.2% and power T&D 2.8%. PNC was operating eight build-operate-transfer (BOT) projects (four toll and three annuity based) and one operation-maintenance-transfer (OMT) project, with strong presence in northern and central India end March 2015. It had invested about Rs 422.32 crore as its share of equity. Four of these BOT projects are operational, generating total net toll (including net annuity) of about Rs 0.50 crore per day. The Offer and the Objects The issue comprises fresh offer of 1.15 crore of equity shares. The offer size at the lower price band of Rs 355 per share works out to Rs 408.25 crore and at the upper price band of Rs 378 per share works out to Rs 434.70 crore. In addition, there is an offer for sale of 0.14 crore of equity shares of Rs 10 each by the selling shareholder Nylim Jacob Ballas India. Post offer, the selling shareholder, who bought 0.57 crore equity shares of face value of Rs 10 each for Rs 263.77 per share in January 2011, will continue to hold 8.31% shareholding. The minimum bid lot is 35 equity shares and in multiples of 35 equity shares thereafter. The issue is made through the book building process and will open on 8 May and close on 12 May. The company intends to utilize the proceeds of the fresh issue to meet around Rs 150 crore of the working capital requirements, Rs 65 crore for part financing the Raebareli-Jaunpur project, about Rs 85 crore for investment in capital equipment, Rs 35 crore for repayment of certain debts and rest for general corporate purpose. Strengths Investment in the road sector is likely to pick up from FY 2016 due to several initiatives taken by the new government. This will provide good growth opportunities. Among the very few companies with a zero claims outstanding from the National Highways Authority of India (NHAI) or any regulatory authority. Strong track record of timely completion of projects, enabling it to receive bonus from the contractor Of the total contract value under execution of Rs 7849.70 crore, the unexecuted and outstanding contract value was Rs 3444.76 crore end March 2014, which provides strong visibility of revenues for the next couple of years. Most of the EPC contracts are at a fixed price. The company was able to negotiate better bitumen and steel prices in FY 2015. Hence, the OPM increased to 15.3% in the nine months ended FY 2015 as against the average OPM of about 12%. If commodity prices remain at lower levels, the company will enjoy better margins. Most of the company's BOT projects are in the industrial and mining activity belt. Improvement in economic activity and gradual traffic growth will augur well for the toll collection business of the company, which is planned to generate Rs 1.65 crore per day by FY 2017 compared with about Rs 0.50 crore per day end March 2015. Weaknesses Any delay in construction of engineering, procurement and construction (EPC) contracts or completion of BOT projects can result in cost overruns, lower returns (or losses) and increase in debt. In the past, many such companies have suffered heavily due to delays in land acquisition, forest clearances, changes in government or government polices/priorities and other local issues. Major BOT projects are around the mining and other industrial belts. Any government action on mining and other industries can result in lower traffic movements in these belts and can lower the internal rate of return (IRR) planned by the company. As the entire EPC contract value is fixed, profit margins will suffer on increase in raw material prices including crude oil, cement, steel and bitumen on which company has no control,. Company's expertise in road EPC and BOT projects is predominately around northern and central India. It intends to expand presence across India and diversify into dedicated freight corridors, waste management and water-related infrastructure projects, which can increase the overall risks for the company. Valuation Consolidated Net sales grew 4% to Rs 1353.43 crore and OP was up 7% to Rs 167.18 crore in FY 2014 over FY 2013. However, higher interest costs, up by 141% to Rs 60.87 crore, resulted in a PBT de-growth of 25% to Rs 83.58 crore. PAT after minority interest (MI) was down 30% to Rs 51.97 crore. On post issue equity share capital of Rs 51.31 crore of face value of Rs 10 each, EPS for March 2014 works out to Rs 10.1. Consolidated Net sales stood at Rs 1319.78 crore and PAT after MI is Rs 62.43 crore in the nine months ended December 2014. The consolidated book value per share was Rs 207 per share end December 2014. At the higher price band of Rs 378 and on an annualized EPS of Rs 16.2 for the nine months ended December 2014, the issue is offered at a P/E of 23.3 times. Among listed companies, KNR Constructions and MBL Infrastructure are comparable with PNC Infra than others. KNR Constructions's annualized EPS of the nine months ended December 2014 works out to Rs 23.05 and, at the current market price of Rs 480, the stock is trading at P/E of 20.8 times. Consolidated EPS of MBL Infrastructure on an annualized basis for the nine months ended December 2014 works out to Rs 43.50 and, at the current market price of Rs 570, the stock is trading at P/E of 13.1 times.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||