INITIATING COVERAGE 30 MAR 2016

PNC Infratech BUY

INDUSTRY INFRASTRUCTURE Raring to grow CMP (as on 29 Mar 2016) Rs 496 PNC Infratech (PNC) is a road-focused EPC player control on execution. This partly explains the high with a strong execution track record. It is on the cusp gross asset turn of 4.2x in FY16E. Target Price Rs 625 of a new growth phase as ~60% of NHAI’s upcoming . Strong WC cycle, high earnings quality: PNC’s Nifty 7,597 bid pipeline is spread across PNC-dominated states, debtor days went down to ~86 in FY15 from ~109 Sensex 24,900 with UP alone contributing 32.6%. PNC’s approach is in FY14. With the uptick in the execution cycle, conservative (selective on BoT bids) and tightly KEY STOCK DATA 9mFY16 debtor days further reduced to ~76. This focused on margins and cash flows in the EPC resulted in a cash conversion cycle of 144 days for Bloomberg PNCL IN segment of the business. 9mFY16 vs. 154 days in FY15. The standalone No. of Shares (mn) 51 balance sheet is healthy (net D/E 0.03x in FY16E). MCap (Rs bn) / ($ mn) 25/382 As enters a cyclical recovery in government-led . Robust BOT portfolio: PNC’s 9mFY16 BOT toll 6m avg traded value (Rs mn) 19 EPC spends over FY16-18E, we expect PNC’s order book/APAT to grow ~1.6/1.4x. We think PNC’s collections grew 30% in the Gwalior-Bhind project STOCK PERFORMANCE (%) capital and bid conservativeness will be more visible and 16% YoY in the Kanpur- OMT project. 52 Week high / low Rs 558/346 as the business ramps up. Initiate coverage with PNC has guided for FY16E toll revenue of Rs 3.5- 3M 6M 12M BUY. Our SOTP-based TP is Rs 625/sh, valuing the 3.7bn vs. our estimate of Rs 3.6bn. We value the Absolute (%) (7.1) 1.9 - core EPC business at 15x FY18E EPS and BOT BOTs at Rs 130/sh (1.4x BV). Relative (%) (2.6) 5.3 - portfolio at Rs 130/sh (DCF, implying 1.4x BV). . Near-term outlook: With (1) Strong ordering potential in home location, (2) Ramp-up in BOT SHAREHOLDING PATTERN (%) Investment arguments Promoters 56.07 traffic, (3) Healthy balance sheet, and (4) Better- than-peer EBIDTA margins and (5) Expected order FIs & Local MFs 19.33 . Conservative bids provide margin comfort: PNC ranks high on bidding discretion, with its inflows; the stock should remain buoyant in the FIIs 3.42 cumulative NHAI EPC contract award value being near term. Public & Others 21.18 7.2% higher than the benchmark cost vs. even Financial Summary (Standalone) Source : BSE Sadbhav Engg (which is 1.4% lower). This provides (Rs mn) FY15 FY16E FY17E FY18E comfort on EBIDTA margin guidance of 13-13.5%. Net Revenues 15,610 19,375 22,692 26,893 Parikshit D Kandpal The early-completion bonus for the - EBITDA 2,166 2,595 3,014 3,583 [email protected] project can add Rs 1bn to FY17E PBT. APAT 954 1,184 1,425 1,696 +91-22-6171-7317 Diluted EPS (Rs) 24.0 23.1 27.8 33.1 . Cluster-based strategy limits capex: Most of P/E (x) 20.7 21.5 17.9 15.0 Prabhat Anantharaman PNC’s projects, including BOTs, are concentrated EV/EBIDTA (x) 10.6 9.9 8.8 7.7 [email protected] in UP. Business has remained focused on UP and RoE (%) 14.9 12.4 11.0 11.7 +91-22-6171-7319 neighbouring states, thereby ensuring a tight Source : Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

PNC INFRATECH: INITIATING COVERAGE

Contents Capitalising on robust roads order pipeline ...... 3 Huge opportunity in PNC dominated states ...... 4 Conservative bids provide margin comfort ...... 5 Policy interventions to improve project awards & execution ...... 6 Hybrid Annuity Model – Next big driver of PPP projects ...... 7 HAM bids show PNC’s conservative stance ...... 7 Cluster-based execution limits CAPEX outlay ...... 8 WC cycle improves, to stabilise further ...... 9 Strong competitive positioning ...... 10 High earnings quality is the differentiator ...... 11 Improving client advances to alleviate B/S stress ...... 11 Receivables/networth below industry averages ...... 11 Debtor days lower than industry average ...... 12 Gross debt/equity lower than peer average ...... 12 Asset turnover higher than industry averages ...... 13 EBITDA margins higher than peers ...... 13 Positive OCF ...... 14 OCF/EBITDA conversion reflect on superior quality cash flow ...... 14 Improving employee cost structure ...... 15 Strong BOT Portfolio – Value BOTs at Rs 130/sh (1.4x P/BV) ...... 17 Key assumption & estimates – Standalone ...... 18 Key assumption & estimates – Consolidated ...... 19 HDFC Sec Vs Consensus ...... 20 Outlook and Valuation...... 21 Key catalysts ...... 23 Key risks to our BUY stance ...... 23 Annexure ...... 24 Financials ...... 26

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PNC INFRATECH: INITIATING COVERAGE

NHAI achieved its peak Capitalising on robust roads order pipeline award of 6,491km in FY12, . NHAI achieved its peak award of 6,491km in FY12 awarded contracts for 3,514km of roads (2,526km but witnessed significant – all under the BOT mode. However, project under the EPC mode, 803km under BOT and decline during FY13 and awards declined significantly in FY13 and FY14, 185km under HAM). FY14 mainly because of plagued by the economic slowdown, subdued macro slowdown infra spending, tight financing environment and NHAI Project Details weak operating metrics for developers. Awarded Length Project Cost

. With a new government at the Centre, the project (till Feb 2016) (Kms) (Rs mn)

awarding activity once again picked up pace in EPC 2,526 293,087 Project award activity FY15. Against a target of 5,000km, NHAI awarded BOT 803 107,982 picked up in FY15 with NHAI 3,026km, of which 2,292km was under the EPC HAM 185 41,620 meeting 60% of its target, mode. Total 3,514 442,689 driven majorly by the EPC . To attract more private participation, NHAI Upcoming Projects projects recently introduced the Hybrid Annuity Model EPC 1,295 182,197

(HAM), which is a mix of EPC and BOT (annuity). BOT 870 99,365 HAM 1,236 240,421 . NHAI plans to award 4,800km in FY16E —2,900km Total 3,400 521,983 under EPC, 900km under BOT and 1,000km under In order to attract private Source: NHAI, Company, HDFC sec Inst Research HAM. In YTDFY16, the authority has successfully participation, NHAI has introduced the Hybrid

Annuity Model – a mix of Trend in NHAI project awards EPC and BOT (annuity) EPC (kms) BOT(kms) Hybrid Annuity (kms) %EPC - RHS models 7,000 Rs mn 120 6,000 100

5,000 80

4,000 60 The authority plans to 3,000 40 award 4,800km in FY16E, of 2,000 20 which it has already 1,000 - achieved 2,819km - (20) FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E YTDFY16

Source: NHAI, Company, HDFC sec Inst Research

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We don’t perceive PNC’s Huge opportunity in PNC-dominated states single-segment exposure in . PNC has a strong pre-qualification in the highways company’s performance is on a par with other roads to be a high risk. The segment with huge ordering potential. It is likely large well-diversified EPC players. ~60% of upcoming NHAI to be the beneficiary of the NHAI’s upcoming bid . At present, the roads segment is a low-hanging bidding pipeline is in PNC- pipeline, with ~60% of bids in PNC-dominated focused states fruit for the government, as initiatives like 90% states. With UP alone contributing 32.6%, the land availability, 10% interest-free advance and

other key states are Jharkhand, and setting up of arbitration tribunal have made the

Rajasthan. sector more lucrative. NHAI is yet to award . Apart from this, the UP Expressways Industrial 15,000km from the existing . While roads remain the key focus area, PNC is also Development Authority (UPEIDA) has an order qualified to bid for the dedicated freight corridor highway programme and pipeline of ~Rs 250bn, with the Lucknow- (DFC). The company is currently bidding for two will be adding another Expressway having an ordering potential of Rs packages of Eastern DFC worth Rs 16bn each. 50,000km in the pipeline 150bn. . There is large ordering potential in MRTS, water . Although investor concerns about roads EPC and irrigation segment. PNC can use its dominating PNC’s revenue stream are valid, the qualification in these segments with JVs. PNC-focused states are also coming up with their own State-wise Distribution Of Upcoming NHAI Bids (%) State-wise Upcoming Project Bid Details state expressway plans, Statewise Kms Type Project Cost (Rs mn) West Bengal Bihar 70 BOT (Toll) 10,055 which lend visibility to the 3.8 Bihar 9.0 71 Hybrid Annuity 30,662 next 8-10 years of order Rajasthan 170 EPC 16,050 pipeline 8.2 Jharkhand Jharkhand 151 BOT (Toll) 27,687 Himachal 9.6 368 EPC 50,274 387 Hybrid Annuity 78,413 Pradesh UP Dedicated freight corridor is 7.3 145 BOT (Toll) 16,610 Karnataka 135 OMT 2,433 another key focus area. PNC 16 EPC 3,076 9.7 Gujarat is expected to bid for two 208 Hybrid Annuity 30,509 UP packages of Rs 16bn each in Maharastra 154 BOT (Toll) 20,918 12.3 32.6 the Eastern Dedicated Gujarat Maharastra 9 EPC 6,134 7.4 Freight Corridor 196 Hybrid Annuity 28,536 Source : NHAI, Company, HDFC sec Inst Research Karnataka 347 EPC 44,030 Himachal 87 Hybrid Annuity 25,880 The existing qualification Pradesh 60 EPC 7,407 can be extended to 215 BOT (Toll) 21,661 irrigation, water and MRTS Rajasthan 111 EPC 8,952 segment through JVs, if 24 Hybrid Annuity 6,684 West Bengal 127 EPC 17,390 required Source : NHAI, Company, HDFC sec Inst Research Page | 4 PNC INFRATECH: INITIATING COVERAGE

PNC’s cumulative NHAI EPC Conservative bids provide margin comfort project wins value has been We mapped YTDFY16 project bids (EPC) opened by comparing our coverage universe, we found that 7.2% higher than the NHAI’s . NHAI and aggregated the wins across key EPC Sadbhav Engineering, despite bidding at 1.4% project cost estimates players in the roads segment. For the sector, the below the NHAI cost on an aggregate basis, has

awarded cost is 0.7% higher than the NHAI’s guided for 10-11% EBIDTA margins. Hence, PNC,

benchmark cost. too, is expected to report higher than 10% EBIDTA margins. . PNC’s aggregate win value is 7.2% higher than the project cost. The company is at the top of the list . Additionally, PNC has location advantage in Uttar with the highest positive difference vs. the Pradesh. Its recent NHAI wins are in close benchmark. This gives us comfort on EBIDTA geographical proximity, which provide scope for This gives us comfort on margins guidance of 13-13.5%. further margins re-rating. Better asset utilisation, availability of road aggregates and strong local EBIDTA margins guidance of . The aggressive bidding by EPC players of late has logistical support will drive cost savings. 13-13.5% cast a shadow on the profitability to be earned on the execution of the projects. However, on

Projects Awarded Under EPC In YTDFY16 EPC Work Cost (INR % Bidding above/below Bidder Awarded Cost (INR mn) mn) benchmark cost PNC Infratech 28,159 30,190 7.2 G.R. Infraprojects 16,870 18,071 7.1 Sadbhav Engineering has bid Dilip Buildcon - Ranjit Buildcon JV 5,707 5,970 4.6 closer to the NHAI cost and Ashoka Buildcon 14,233 14,809 4.0 yet given road EPC projects KNR Construction 15,583 16,061 3.1 EBIDTA margins guidance of Gayatri Projects 39,653 39,930 0.7 10-11%. This provides Jkumar Infra - JM Mhatre JV 16,294 16,337 0.3 direction on PNC Oriental Infra 6,645 6,589 (0.9) comfortably achieving 13- Sadbhav Engg 24,870 24,525 (1.4) 13.5% guidance, as its JP Associates 7,885 7,470 (5.3) cumulative award win value L&T 24,390 22,450 (8.0) is 7.2% above the NHAI M.G. Contractors Pvt. Ltd. 2,392 2,122 (11.3) benchmark cost Varaha Infra 2,731 2,293 (16.0) Total 205,412 206,817 0.7 Source: NHAI, Company, HDFC sec Inst Research

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NHAI has now eased the Policy interventions to improve project awards and execution project clearance process, . With government initiatives making the roads introduced the Hybrid Annuity Model (HAM) for with 90% of the land being sector margins more attractive, bids have been highways development. Unlike in the BOT model, acquired before issuing the flowing in for the EPC segment. Earlier, the sector the government will fund 40% of the project cost letter of award to the was plagued by the ‘right-of-way’ issue with land under HAM, resulting in limited equity funding contractor availability being a major concern. This often led from the private developers.

to projects lying idle for a long time, with fixed . Additionally, NHAI has introduced one-time fund costs accruing and resulting in cost overruns. infusion to revive unfinished BOT projects where NHAI has now eased the project clearance significant progress has been made. In case of BOT projects, the . process, with 90% of the land being acquired developer can exit two years . The NDA government’s Union Budget 2016-17 has before issuing the letter of award to the after receiving COD given a fresh lease of life to PPPs. The government contractor. In case of BOT projects, the developer plans to introduce the Public Utility (Resolution of can exit two years after receiving COD. This will Disputes) Bill during FY17E. Also, guidelines for provide much-needed relief to stressed renegotiation of PPP concession agreement are developers and also free up equity for new BOT expected to be issued, and a new credit rating NHAI has introduced one- projects. time fund infusion to revive system for infrastructure projects will be unfinished BOT projects . Premium rescheduling has also been allowed for announced. projects where developers are witnessing cash where significant progress . This, along with the Arbitration and Conciliation flow shortfall in servicing debt. has been made Act Bill, 2015, and Commercial Courts Bill, 2015, . After witnessing limited developer interest in BOT will help settle arbitration claims in 18-24 months projects over the past few years, NHAI recently instead of over a decade at present. Policy Measures To Improve Executions Policy Decisions Impact Reduced financial risk for developers as govt. funds 40% of the project cost. Higher EPC order Introduction of Hybrid Annuity Model Arbitration and Conciliation inflows. Toll collection risk lies with the govt. as developer earns annuity-based income Act Bill, 2015, and Amendments to Model Concession Places onus on NHAI for timely execution. Regular reporting of projects improves execution and Agreement (MCA) reduces contractual disputes. Commercial Courts Bill, Premium payments can be rescheduled and deferred at "bank rate + 2%" to align with project Allowing premium restructuring 2015, will help settle cash flows arbitration claims in 18-24 One-time fund infusion by NHAI in stuck project will ease funding-related issues and enable debt Revival of stuck projects months instead of over a servicing Allowing developers to exit project two years after receiving COD will provide relief to stressed decade at present Easing of exit norms developers Resolving ROW & land acquisition To ease project clearance process and speed up execution. NHAI to only award land after related issues acquiring 80% for BOT & 90% for EPC projects Source: NHAI, Company, HDFC sec Inst Research

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Hybrid Annuity Model: Next big driver of NHAI PPP projects

Salient Features Of The Model Key Feature Impact PNC has been conservative Concession period of 15 years including construction period while bidding for the initial Bidders will quote construction cost as the bid variable - called ’Bid Project Cost’ (BPC) rounds of Hybrid Annuity Bidding and concession period Bidders to also quote O&M payments projects in UP, with its Evaluation of bids on lifecycle cost basis considering NPV of both BPC and O&M bids package-III bid being 46.8% BPC to be indexed every month (70% of WPI and 30% of CPI) higher 40% of the BPC to be funded by NHAI Payments linked to physical progress milestones (24%, 40%, 60%, 75%, 90%) Payments during construction 10% mobilisation advance (interest bearing) to be adjusted against periodic billings

Early-completion bonus of 0.5%/month of 60% of BPC

40% of the BPC to be paid in bi-annual annuities over 15 years post-COD

Annuities to carry additional interest at 'bank rate +3%' on reducing balance basis Payments during operations Reimbursement for O&M expenses will be as per bids. Payments will be indexed

The annuity payments will be ballooning

Original consortium to hold minimum 51% during construction period and till two years post-COD Exit norms Exit allowed post completion of two years of COD Similarly, for the Meerut- Source: NHAI, Company, HDFC sec Inst Research Bulandshahr, PNC bid was higher than project cost by HAM bids show PNC’s conservative stance 28.3%. It didn’t bid for the . PNC has been conservative while bidding for the . Similarly, for the Meerut-Bulandshahr, PNC bid Delhi Meerut Package-I. initial rounds of Hybrid Annuity projects in UP, was higher than project cost by 28.3%. It didn’t bid with its package-III bid being 46.8% higher. for the Delhi Meerut Package-I.

Delhi-Meerut Expressway Project Name Delhi-Meerut Expressway Package-III 4-laning of Meerut-Bulandshahr NH-334 Package-I Project Cost (Rs mn) 10,237 6,636 6,804 Length (Kms) 22.27 8.72 61.20 L1 - APCO/ L2 - Sadbhav L3 - PNC L4 - Ashoka L1- Welspun L2 - Ashoka L1 - APCO/ L2 - PNC L3 - Sadbhav L4 - Ashoka Name of Bidder Chetak JV Infrastructure Infratech Concessions Enterprise Concessions Chetak JV Infratech Infrastructure Concessions Bid Project Cost 10,576 12,060 15,030 15,820 8,415 13,060 8,690 8,730 8,100 10,420 O&M (Annual) (Rs mn) 171 243 162 260 40 212 58 61 191 99 NPV of Bid Project Cost (Rs mn) 8,855 10,097 12,584 13,246 7,046 10,935 7,730 7,790 8,280 9,500 Source : Company, HDFC sec Inst Research

Page | 7 PNC INFRATECH: INITIATING COVERAGE

Cluster-based execution limits capex outlay . PNC’s cluster-based execution strategy fuels its are located in UP. To assert its dominance in the revenue and profitability growth. The company northern region, the company has remained consciously bids for projects in close proximity to focused on UP and the neighbouring states, its quarries and crusher plants, which are spread thereby ensuring a tight control on execution. This out within a 500-km radius of Delhi. strategy has resulted in high gross asset turnover of 4.1x FY16E. . A majority of its projects, including all the BOTs,

Existing BOT Projects BULANDSHAHR Existing EPC Projects MEERUT Upcoming Hydrid Annuity Projects ALMORA Expressway (Lucknow to Ballia) DELHI GHAZIABAD BAREILLY

ALIGARH BARABANKI SONAULI

AGRA FIROZABAD LUCKNOW JARWAL BHIND GORAKHPUR KANPUR AYODHYA SULTANPUR

GWALIOR RAE BARELI KOLIWAR BALLIA JAUNPUR KABRAI BHOJPUR MANIHARI BUXAR

Source: NHAI, Company, HDFC sec Inst Research

Page | 8 PNC INFRATECH: INITIATING COVERAGE

WC cycle improves, to stabilise further Inventory days reduced from . Plagued by a prolonged slowdown in economic . Despite this deterioration, we don’t expect any 52 to 38 days during 9mFY16 activity, subdued infra spending, tight financing significant leverage build up in the balance sheet. vs FY15 environment and weak operating metrics, PNC The FY16E net D/E is expected to be 0.03x, and saw its debtor days rise to ~119 in FY12. With the may increase to 0.1x during FY17E. uptick in the execution cycle, 9mFY16 debtors . Given the strong revenue growth, PNC will have reduced to 76 days and inventory to 38 vs. generate only marginally positive operating cash 52 days in FY15. flows on account of working capital expansion This has resulted in a cash conversion cycle of 144 over FY16-18E. Capex requirements will result in . days for 9mFY16 vs. 154 as of end FY15. With pick- negative FCF. We do not see this impacting the Debtor days also improved up in the EPC order book and less dependence on balance sheet materially as the accretion to net from 86 days to 76 during captive orders, the working capital cycle may worth will keep D/E in check. 9mFY16 marginally deteriorate to 157 days during FY16E.

Working Capital Cycle (Standalone) Particulars (days) FY10 FY11 FY12 FY13 FY14 FY15 9mFY16 FY16E FY17E FY18E Inventory 20.8 47.3 42.5 29.4 33.2 52.0 38.2 45.0 45.0 45.0

Debtors 65.0 60.9 119.2 111.5 108.8 85.8 75.9 85.0 90.0 90.0

Cash conversion cycle Other Current Assets 25.5 21.0 42.1 49.9 71.7 76.3 91.0 91.0 91.0 92.0 improved from 154 days Payables 11.9 13.5 24.6 40.4 22.2 25.3 20.2 22.0 25.0 25.0 end-FY15 to 144 days end- Other Curr Liabilities & Provisions 18.3 5.4 19.1 15.1 39.9 34.6 41.2 42.0 42.0 42.0 9mFY16 Net Working Capital Cycle 81.1 110.4 160.1 135.3 151.6 154.2 143.8 157.0 159.0 160.0 Source: Company, HDFC sec Inst Research

Owing to strong revenue Free Cash Flow (FCF) Generation (Standalone) growth, the WC may expand Particulars (Rs mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E resulting in negative FCF. EBITDA 923 1,288 1,535 1,607 1,418 2,166 2,595 3,014 3,583 This may not have a major NWC Changes (425) (2,000) (1,179) 729 514 (1,094) (1,593) (1,681) (2,027) impact on balance sheet Cash Flow From Operations 274 (1,002) (19) 2,004 1,653 632 342 575 703 deterioration, as net D/E Capex (119) (313) (339) (331) (535) (1,012) (800) (800) (850) will still be ~0.1x end-FY17E Free Cash Flow (FCF) 155 (1,315) (358) 1,673 1,118 (380) (458) (225) (147) vs. 0.03x during FY16E Enterprise Value (EV) 17,376 20,371 22,073 21,898 21,492 23,063 25,804 26,412 27,600 FCF/EV (%) 0.9 (6.5) (1.6) 7.6 5.2 (1.6) (1.8) (0.9) (0.5) Source : Company, HDFC sec Inst Research

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PNC INFRATECH: INITIATING COVERAGE

PNC has strong competitive Strong competitive positioning positioning in the sector . On competitive positioning of EPC players, PNC is . Competitive positioning will further strengthen placed well with above average execution, with reducing exposure to subsidiaries and ROE relatively strong cost structure, high asset turn, expansion. Operating leverage on high execution average CFO/EBIDTA and low D/E ratio. will lead to margin and earning recovery.

PNC Ahead Of EPC Peers On Competitive Positioning Exposure to Asset Turnover EBITDA Overall Cost structure CFO D/E Rec/NW (x) Margin (%) Score

ITD Cementation

J Kumar

NCC

KNR Construction

Simplex Infra

Sadbhav Engineering

PNC Infra

Note: Strong; Relatively Strong; Average; Relatively Weak Weak Source: Company, HDFC sec Inst Research

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High earnings quality is the differentiator Improving client advances to alleviate B/S stress Receivables/net worth below industry averages

. PNC’s advances from customers at ~14.1% of total . In the peer group, PNC’s receivable as percentage

revenues in FY16E are higher compared to peer of net worth is below the industry average,

average of 10.6%. This is on account of new order demonstrating the quality of the order book and inflows and a majority of the projects being in the financial discipline followed by the company. We early execution stage. A higher share of interest- expect this to remain at current levels in the free customer advances will alleviate working future, as the impending pick-up in execution capital pressure. PNC is targeting Rs 104.5bn cycle will be equally compensated by a worth of new order inflows between FY16 and proportionate increase in receivables. FY18E.

Client advances/revenue at Advances From Customers As % Of Total Revenue FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E 14.1% have remained higher ITD Cementation 21.4 17.3 11.8 14.3 12.8 12.2 18.5 20.7 15.1 than peer average of 10.6% J Kumar 4.6 2.2 2.0 1.0 1.3 14.0 27.2 18.8 6.8 6.8 NCC 2.8 3.8 2.5 0.4 3.3 16.8 14.9 18.3 8.0 8.0

KNR Construction 25.0 15.2 20.9 22.4 12.4 3.4 7.6 3.5 3.2 4.9 Simplex 18.8 20.3 17.0 13.6 16.0 16.4 19.0 14.8 17.4 17.1 Sadbhav Engineering 29.4 12.7 13.7 25.8 22.1 10.5 12.1 17.6 11.5 11.5 PNC Infratech 7.1 1.0 11.2 6.6 18.9 14.1 14.1

Average 16.1 12.6 12.2 12.5 11.6 12.3 15.5 15.2 11.3 10.6 Source: Company *For ITDC FY16E should be read as CY15 Receivables/Net Worth (x) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E

Receivable/net worth is ITD Cementation 0.83 1.40 1.35 1.60 0.99 0.91 0.98 0.78 0.66 lower than peer group at J Kumar 0.06 0.12 0.25 0.22 0.27 0.20 0.23 0.23 0.25 0.21 0.4x. This implies high order NCC 0.56 0.55 0.61 0.58 0.61 0.54 0.46 0.53 0.43 0.46 book quality and strong KNR Construction 0.64 0.26 0.49 0.62 0.39 0.23 0.27 0.23 0.31 0.23 collection discipline Simplex 3.08 1.53 1.85 1.85 2.13 2.62 3.03 2.92 3.25 3.09 Sadbhav Engineering 0.58 0.47 0.45 0.71 0.70 0.90 0.95 0.81 0.56 0.72 PNC Infratech 0.69 0.46 0.84 0.70 0.55 0.51 0.36

Average 0.98 0.63 0.84 0.89 0.95 0.91 0.97 0.95 0.93 0.90 Source: Company *For ITDC FY16E should be read as CY15

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Debtor days lower than industry average Gross debt/equity lower than peer average . PNC’s debtor cycle is below the peer group . PNC’s gross D/E at 0.1x is lower than its peerset’s average. While we expect an increase, it will average of 0.8x. We expect this to remain at 0.1x remain comfortable at ~90 days by FY18E as pick in FY18E primarily on account of ease in net up in the execution cycle will be equally working capital cycle, higher operating cash flows PNC’s receivable days have compensated by a proportionate increase in and lower capex requirement. receivables. As of Dec-15, PNC’s debtor days improved from 86 in FY15 to 76 in 9mFY16. We expect it reduced to 76 vs. 86 in FY15. The management to stabilise at 85-90 days expects this to moderate to 85-90 days by end- over the FY16-18E period FY16E. Receivables (Days Of Sales) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E

ITD Cementation 114 134 118 144 81 79 93 94 40

J Kumar 4 26 33 32 39 35 42 41 55 69 NCC 74 91 90 99 105 91 73 80 60 70 KNR Construction 59 45 72 97 65 45 63 51 73 68 Simplex 181 149 130 147 178 195 244 271 306 289 Sadbhav Engineering 64 55 53 81 73 94 159 120 92 110 PNC Infratech 65 61 119 111 109 86 85

Average 76 80 85 96 101 90 110 109 113 108 Source: Company *For ITDC FY16E should be read as CY15 Gross D/E lower at 0.1x vs. peer average of 0.8x. This is Gross Debt/Equity (x) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E expected to remain at ITD Cementation 0.25 1.25 1.41 1.51 1.71 1.96 1.88 1.35 1.18 current levels J Kumar 1.23 0.31 0.32 0.18 0.44 0.39 0.47 0.97 0.65 0.33 NCC 0.61 0.57 0.74 0.68 1.04 0.93 0.90 0.98 0.62 0.64 KNR Construction 1.69 0.72 0.51 0.36 0.21 0.14 0.16 0.18 0.17 0.09 Simplex 2.49 0.99 1.35 1.34 1.54 1.78 2.09 2.10 2.24 2.09 Sadbhav Engineering 0.50 0.53 0.61 1.08 0.64 0.59 0.92 1.07 0.81 0.70 PNC Infratech 0.49 0.25 0.55 0.45 0.44 0.49 0.09

Average 1.31 0.56 0.80 0.84 0.90 0.92 1.08 1.20 0.97 0.84 Source: Company *For ITDC FY16E should be read as CY15

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Asset turnover higher than industry averages

. PNC’s asset turnover is higher than the average for . PNC owns a huge fleet of construction equipment its peers. We expect the asset turn to improve to and mines from which aggregates are produced, ~4.3x by FY18E, mainly on account of increased enabling it to assert a tight control on timeliness order visibility and consequent pick-up in PNC’s and cost. execution capability.

Asset Turnover Higher Vs. Peers Asset Turnover (x) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E Asset turns higher vs. peers. ITD Cementation* 4.9 4.8 4.3 3.8 3.7 3.3 3.0 3.0 5.1

Expect pick-up on account of J Kumar 2.9 3.2 3.4 5.6 5.8 4.3 3.3 2.6 2.2 2.2 increased order visibility and NCC 5.7 5.2 6.7 6.3 5.5 5.1 5.2 5.3 6.9 6.4 execution capability KNR Construction 2.2 2.3 2.5 2.5 2.0 1.6 1.4 1.6 1.6 1.4 Simplex 4.0 3.7 3.9 3.6 3.2 3.3 3.2 2.9 2.7 2.6 Sadbhav Engineering 2.4 3.7 4.1 3.8 5.9 6.0 3.5 3.2 3.5 3.8 PNC Infratech 5.0 6.3 6.3 5.8 4.0 4.1 4.2

Average 3.5 3.8 4.2 4.3 4.4 4.0 3.3 3.1 3.3 3.6 Source: Company *For ITDC FY16E should be read as CY15

EBITDA margins higher than peers . PNC’s EBITDA margins are ~200bps higher 1bn of early-completion bonus on some of its EPC compared to its peers. This is an outcome of projects. Going forward, we expect margins to be EBIDTA margins higher than choosing quality orders and ahead-of-schedule maintained in the 13-14% corridor. peers owing to self-owned project completion. PNC is expecting nearly ~Rs equipment and captive quarries near its projects EBIDTA Margins (%) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E

ITD Cementation* 6.7 4.8 9.3 9.6 9.7 12.6 10.3 5.3 6.2

J Kumar 14.9 18.2 14.9 16.8 15.1 16.1 16.7 17.3 18.7 18.0 NCC 8.1 10.4 9.0 10.1 9.6 7.6 8.2 6.6 7.8 8.7 KNR Construction 13.4 14.5 15.1 15.7 17.1 18.4 18.6 15.6 14.3 16.0 Simplex 8.3 8.4 7.2 8.3 8.7 7.8 7.9 9.2 10.1 10.2 Sadbhav Engineering 12.2 10.8 10.2 11.0 10.8 10.8 8.6 10.6 10.1 10.8 PNC Infratech 12.3 11.3 12.1 12.3 12.3 13.9 13.4

Average 11.4 11.5 10.2 11.9 11.8 11.8 12.1 11.6 11.0 11.7 Source: Company *For ITDC FY16E should be read as CY15

Page | 13 PNC INFRATECH: INITIATING COVERAGE

Positive OCF

CFO is expected to remain . PNC has delivered positive cash flows from . We expect PNC to benefit from the upcoming positive and improve from operations from FY13, which explains the low net Hybrid Annuity opportunity, while competition in FY17E D/E ratio. Going ahead, we expect the cash flow the EPC segment will be huge. PNC will adopt a from operations to improve as profitability stable approach while bidding for the EPC increases and the company exercises a tighter segment so as to maintain its EBIDTA margins of control on its working capital needs. 13-14%. Operating Cash Flow CFO (Rs mn) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E ITD Cementation - - (2,449) 468 1,222 571 151 1,869 436 4,651 J Kumar 178 (70) 142 (10) (280) 1,180 998 (252) 586 1,262

NCC 1,645 (492) (1,488) 239 (2,514) 9,764 3,685 3,699 5,139 5,204

KNR Construction 327 439 1,164 340 818 1,126 10 1,332 671 2,668 Simplex (140) 587 603 1,107 114 341 (1,333) 1,986 686 7,956 Sadbhav Engineering 278 (283) 430 863 (373) 1,051 658 4,623 (365) 2,007 PNC Infratech - - - 274 (1,002) (19) 1,793 1,653 632 342 Average 402 93 (406) 428 (128) 2,597 702 1,727 1,504 4,348 Source : Company *For ITDC FY16E should be read as CY15

OCF/EBIDTA conversion reflect on superior quality of cash flow . Barring FY11-12, the OCF/EBIDTA ratio for the . After strong FY13-14 CFO/EBIDTA, the quality of company has been positive. With a currently debt- cash flows deteriorated during FY16E on account OCF/EBIDTA conversion free balance sheet, PNC has sufficient scope to of high working capital investment. This is deteriorated in FY15-16E fund future growth. expected to improve from FY17E. after strong FY13-14 owing OCF/EBIDTA Depicts High Cash-Flow Quality to revenue growth pick-up. OCF/EBIDTA % FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E The trend will improve from ITD Cementation (384) 34 87 34 7 115 48 243

FY17E J Kumar 106.0 (17.9) 23.5 (0.8) (19.5) 78.7 59.6 (12.3) 23.4 50.1 NCC 70.4 (13.7) (39.8) 4.9 (51.8) 244.5 78.3 91.4 79.1 74.1 KNR Construction 93.2 63.1 118.9 30.3 60.3 80.8 0.8 101.9 53.2 193.9 Simplex (9.9) 24.8 18.1 30.0 2.8 7.4 (28.5) 38.3 12.2 133.5 Sadbhav Engineering 47.0 (29.3) 39.7 62.7 (15.7) 36.2 42.3 185.7 (12.2) 52.6 PNC Infratech 29.7 (77.8) (1.2) 111.5 116.5 29.2 13.2

Average 61.3 5.4 (37.2) 26.8 10.5 80.3 26.6 86.7 33.9 124.5 Source : Company *For ITDC FY16E should be read as CY15 Page | 14 PNC INFRATECH: INITIATING COVERAGE

Improving employee cost structure company (roads), with limited skill requirements,

the cost structure has remained low over an . PNC’s employee expense is below its peer extended period. average. Since PNC is virtually a single vertical Employee Expenses % Revenue FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E

ITD Cementation 8.8 8.4 8.6 10.1 10.1 11.3 12.1 11.3 7.2

J Kumar 1.2 1.8 2.2 2.1 2.4 3.0 4.7 6.5 5.5 5.6 NCC 2.6 3.6 4.2 3.5 4.8 4.6 4.2 3.9 3.2 3.7 KNR Construction 1.5 1.6 2.2 2.3 2.2 3.6 4.2 4.2 4.3 5.0 Simplex 2.0 1.8 1.7 1.9 8.1 7.7 8.4 8.4 8.6 8.6 Sadbhav Engineering 2.1 1.6 1.5 1.5 1.5 1.5 2.4 2.6 3.3 3.3 PNC Infratech 2.8 2.8 3.3 3.6 5.0 4.7 4.6

Average 1.9 3.2 3.4 3.3 4.9 5.1 5.9 6.3 6.0 5.6 Source: Company *For ITDC FY16E should be read as CY15

Page | 15 PNC INFRATECH: INITIATING COVERAGE

Order Book, Revenues, Book-to-bill Ratio EBITDA And PAT Margins (%) Expect order book to grow 1.6x and revenue CAGR of Order book (Rs mn) Revenues (Rs mn) EBITDA Margins (%) PAT Margins (%) - RHS Book-to-bill ratio (x) - RHS 17.8% over FY16-18E 16.0 Rs mn Rs mn 4 14.0 65,000 12.0 3 10.0 EBITDA and PAT margins to 8.0 45,000 2 remain at 13-13.5% and 6- 6.0 6.5%, respectively, over 4.0 FY16-18E 25,000 1 2.0

- 5,000 0

FY10 FY11 FY12 FY13 FY14 FY15 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY18E FY17E FY16E FY17E FY18E Expect FY18E net debt of Rs 2.1bn and net D/E ratio of Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research 0.1x

Net Debt And Net D/E Cash Flow From Operations & NWC Cycle

Net Debt (Rs mn) Net D/E Ratio (x) - RHS Cash flow from operations - LHS NWC Cycle - RHS

Expect FY18E net working 3,500 0.50 2,500 Rs mn Rs mn 180 0.45 capital cycle of 160 days and 2,000 160 3,000 0.40 1,500 140 cash flow from operations to 0.35 2,500 120 improve to Rs 703mn 0.30 1,000 100 2,000 0.25 500 80 0.20 0 1,500 0.15 60 -500 0.10 40 1,000 0.05 -1,000 20 500 - -1,500 0 FY10 FY11 FY12 FY13 FY14 FY15 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY16E FY17E FY18E

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

Page | 16 PNC INFRATECH: INITIATING COVERAGE

PNC has guided for Rs 3.5- Strong BOT portfolio – Value BOTs at Rs 130/sh (1.4x P/BV) 3.7bn toll collections for . PNC’s 9mFY16 BOT toll collections grew 30% YoY 5:25 scheme to align the project cash flows. Break- FY16E. We have estimated in the Gwalior-Bhind project and 16% YoY in the even interest cost is Rs 5mn/day collections. the same at Rs 3.6bn. Kanpur-Ayodhya OMT project. PNC has guided for . -Jaunpur Annuity: PNC received COD for FY16E toll revenue of Rs 3.5-3.7bn vs. our estimate the Raebareli-Jaunpur BOT project in March 2016. Aligarh-Ghaziabad project of Rs 3.6bn. collection has been sharply The project achieved COD three months ahead of lower (Rs 4mn) vs. estimates . The Aligarh-Ghaziabad project has been a pain the June-16E deadline. The management expects point in PNC’s BOT portfolio. Against Rs 9mn/day to receive three-month partial semi-annuity of Rs (Rs 9mn). Post-overloading of tolling estimate, the actual 3QFY16 collection 320mn as bonus by Dec-16E. charge collection and stood at Rs 4mn/day. The shortfall in the achievement of full COD, toll . Bareli-Almora: Tolling started during 3QFY16 with collections is expected to contract post the Rs 1mn/day collections vs. Rs 1.4mn/day collection may improve to Rs installation of the Weigh Bridge. Overloading 6.5mn/day estimates. PNC expects to charge overloading and charges collection can add about Rs 1mn/day in traffic leakage by Apr-16E. This may result in collections. collections reaching Rs 1.4mn/day. . Further, full COD (currently tolling is for There is no pending equity . PNC’s other BOT (Kanpur-Kabrai, Kanpur-Ayodhya to be invested in the 103/126km) is expected by May-16E, which may and Gwalior-Bhind) collections are higher than add another Rs 1.5mn/day in collection. This will projects. Total equity estimates. We have valued PNC’s BOT portfolio at take total collection/day to Rs 6-6.5mn/day. The invested is Rs 4.6bn (PNC Rs 130/share using DCF methodolgy. PNC JV is also trying to take this project under the share)

PNC Equity Project NPV (PNC Per share PNC Stake Implied P/B Project WACC (%) Invested Value (Rs Share) INR value (%) (x) PNC has monetised 8.5% (INR mn) mn) mn (Rs/sh) stake in Jaora Nayagaon for Bareilly-Almora-Bagheshwar 100.0 13.5 750 1,038 1,038 20 1.4 a consideration of Rs Kanpur-Kabrai 100.0 13.5 675 1,667 1,667 32 2.5 341.5mn. PNC expect to Gwalior Bhind 100.0 13.5 780 964 964 19 1.2 record Rs 97.3mn PBT during Aligarh-Ghaziabad 35.0 13.5 679 1,645 576 11 0.8 4QFY16E Raibareli - Jaunpur 100.0 13.5 1,395 646 646 13 0.5 Narela Industrial Estate 100.0 13.5 350 789 789 15 2.3 Kanpur-Ayodhya 100.0 13.5 - 968 968 19 - PNC’s total asset portfolio is Total 4,629 7,717 6,648 130 1.4 valued at Rs 130/sh Source: Company, HDFC sec Inst Research

Page | 17 PNC INFRATECH: INITIATING COVERAGE

Key Assumptions And Estimates (Standalone) We expect 26.4% FY16-18E (Rs mn) FY15 FY16E FY17E FY18E Comments order backlog CAGR We expect 26.4% FY16-18E order backlog CAGR on account of Closing order book 34,448 43,755 55,114 69,938 strong NHAI and state EPC roads pipeline Strong growth during FY16E as PNC has secured new orders Order book growth (%) 23.2 27.0 26.0 26.9 worth Rs 28bn New order booking 18,490 28,682 34,051 41,718 FY16-18E revenue CAGR Book to bill ratio 2.7 2.5 2.6 2.8 Book-to-bill ratio to improve on new order wins 17.8%, EBIDTA CAGR 17.5% Strong order book accretion to result in FY17-18E with revenue Total Revenue 15,610 19,375 22,692 26,893 CAGR of 17.8% Growth (%) 35.5 24.1 17.1 18.5 EBIDTA 2,166 2,595 3,014 3,583 FY15-18E EBIDTA CAGR of 17.5% EBIDTA margin (%) 13.9 13.4 13.3 13.3 Margins to remain in 13-13.5% range FY16-18E net profit to Depreciation 364 525 550 699 Borrowing cost to grow in line with revenue at 17.6% FY16-18E multiply 1.4x Financial Charges 462 319 376 441 CAGR

PBT 1,429 1,845 2,183 2,549 FY15-18E PBT CAGR of 17.5%

PBT margin (%) 9.2 9.5 9.6 9.5 PBT margins to remain stable

Tax 474.8 660.6 757.9 853.1

Tax rate (%) 33.2 35.8 34.7 33.5

APAT 954 1,184 1,425 1,696 FY16-18E PAT CAGR of 19.7%

Net margin (%) 6.1 6.1 6.3 6.3 Net margins to remain stable Gross Block Turnover 4.7 4.6 4.5 4.6 Improvement on account of new orders inflow May marginally deteriorate on account of delay in payments for Debtor days 86 85 90 90 UP Expressway project Higher revenue growth, robust client advance to result in higher CFO - a 632 342 575 703 positive cash flow from operations We have assumed PNC to take one hybrid annuity project of Rs Net cash position doesn’t CFI - b (1,648) (1,450) (850) (1,500) 10bn in 1HCY16E. Total outgo on equity will be Rs 1.2bn cumulative can be met by internal accruals change debt materially FCF - a+b (1,016) (1,108) (275) (797)

CFF - c 229 1,734 1,066 509

Total change in cash - (788) 626 791 (288) Net cash position doesn’t change debt materially a+b+c Source : HDFC sec Inst Research

Page | 18 PNC INFRATECH: INITIATING COVERAGE

Key assumptions and estimates (Consolidated) FY16-18E revenue CAGR of (Rs mn) FY15 FY16E FY17E FY18E Comments 19.8% Toll revenue excludes Aligarh-Ghaziabad. Full year revenue impact of Toll revenue 2,394 3,662 5,556 6,186 toll and annuity projects to reflect from FY17E, with all the projects being operational. FY16-18E CAGR of 30% Expect execution to materially pick up during FY16-18E with revenue Construction revenue 16,215 19,375 22,692 26,893 This will be driven by toll CAGR of 17.8% revenue CAGR of 30% and Total Revenue 18,609 23,037 28,249 33,079 Overall FY16-18E revenue CAGR of 19.8% Growth (%) 36.8 23.8 22.6 17.1 EPC revenue CAGR of 17.8% EBIDTA (Toll) 633 1,353 2,940 3,322 FY16-18E Toll EBIDTA CAGR of 56.7% EBIDTA (Construction) 2,166 2,595 3,014 3,583 FY16-18E EBIDTA CAGR of 17.5% EBIDTA margin Toll (%) 26.4 36.9 52.9 53.7 BOT margins to improve as toll projects have close to 90% margins EBIDTA margin Construction 13.4 13.4 13.3 13.3 FY16-18E EBIDTA CAGR of (%) 32.2% largely driven by toll Total EBIDTA 2,799.0 3,948.4 5,954.3 6,904.4 Overall FY16-18E EBIDTA CAGR of 32.2% EBIDTA CAGR of 56.7% and EBIDTA margin 15.0 17.1 21.1 20.9 Improvement owing to higher toll revenue EPC EBIDTA CAGR of 17.5% Depreciation 603 1,178 1,738 2,053 Growth in line with BOT assets capitalisation Financial Charges 925 1,170 2,261 2,277 Interest expense largely driven by BOT projects PBT 1,392 1,737 2,090 2,718 FY15-18E PBT CAGR of 25.1% PBT margin (%) 7.5 7.5 7.4 8.2 Expansion owing to faster toll revenue growth Tax 479 684 811 930

Tax rate (%) 34.4 39.4 38.8 34.2

With most of the BOT Minority/Profit from Asso. 0.0 (222.3) (22.8) 45.4 projects turning profitable PAT 913 830 1,256 1,834 FY16-18E PAT CAGR of 48.6% from FY18E, FY16-18E net Net margin (%) 4.9 3.6 4.4 5.5 profit is expected to multiply Impacted by BOT project capitalisation. Since these are concession 2.2x Gross Block Turnover 2.2 1.2 1.0 1.1 projects, the asset turn is low as revenue is realised over life of the project Debtor days 52 60 75 75 Stable debtor days Higher revenue growth and full impact of high-margin BOTs to result CFO - a 2,468 1,740 3,029 4,786 in higher positive cash flow from operations Net cash position to remain No incremental BOT project requirement. Capex to be largely CFI - b (9,749) (5,084) (800) (850) strong standalone business driven FCF - a+b (7,281) (3,343) 2,229 3,936

CFF - c 6,536 3,814 (1,501) (2,285)

Total change in cash - a+b+c (745) 471 728 1,650 Net cash position to remain strong Source : HDFC sec Inst Research

Page | 19

PNC INFRATECH: INITIATING COVERAGE

Consensus not fully HDFC sec vs. Consensus factoring in the impact of back-ended order wins and . On standalone basis, our estimates are lower vs. . Our FY17E and FY18E consolidated revenue consensus as back-ended orders may result in sub- estimates are sub-consensus, as we model for resultant miss in 20-25% consensus earnings growth. lower EPC execution. EBIDTA is higher than revenue growth guidance estimates as we factor in better toll collection and . Further, higher utilisation of working capital strong portfolio traffic growth. (3QFY16-end standalone debt of Rs 450mn is Full impact of increased expected to touch Rs 3bn during FY17E) limits will . High EBIDTA margin in BOT portfolio will result in working capital utilisation result in increased interest outlay. Lower-than- higher-than-consensus EBIDTA and PAT estimate. and higher interest expense consensus topline growth and higher interest Our EBIDTA margin estimate is about ~110bps not factored in by consensus outgo will result in our FY18E net profit estimate higher than consensus. being lower by 13.9%. HDFC sec Vs Consensus Standalone Consensus HDFC Sec % Divergence This results in our FY16E 19,512 19,375 (0.7) standalone FY18E net profit Sales (Rs mn) FY17E 23,532 22,692 (3.6) estimate being 13.9% lower FY18E 27,905 26,893 (3.6) vs. consensus FY16E 2,603 2,595 (0.3) EBIDTA (Rs mn) FY17E 3,101 3,014 (2.8) FY18E 3,721 3,583 (3.7) FY16E 1,276 1,184 (7.2) Net Profit (Rs mn) FY17E 1,614 1,425 (11.7) FY18E 1,970 1,696 (13.9) Source: HDFC sec Inst Research Our consolidated net profit estimate is higher than Consolidated Consensus HDFC Sec % Divergence consensus by 8-12% on FY16E 23,449 23,037 (1.8) account of better toll Sales (Rs mn) FY17E 29,272 28,249 (3.5) collection and improvement FY18E 34,140 33,079 (3.1) in blended EBIDTA margins FY16E 4,005 3,948 (1.4) and PAT EBIDTA (Rs mn) FY17E 5,884 5,954 1.2 FY18E 6,707 6,904 2.9 FY16E 702 830 18.3 Net Profit (Rs mn) FY17E 1,119 1,256 12.2 FY18E 1,695 1,834 8.2 Source: HDFC sec Inst Research Page | 20 PNC INFRATECH: INITIATING COVERAGE

Outlook And Valuation

Target Price of Rs 625/sh implies ~26.1% upside We value standalone EPC business at Rs 496/sh (15x . We have valued PNC standalone on P/E basis, in . While the NHAI pipeline remains strong (about Rs one-year forward line with its road EPC peers, namely KNR/J 900bn annually) PNC’s home state Mar-18E EPS) Kumar/Sadbhav, at 15x one-year forward. Our is coming up with Rs 250bn of road projects to be rationale is (1) Robust order book with ~1.6x awarded over the next 2 years. A strong set up in We value PNC’s BOT increase over the FY16-18E period to Rs 69.9bn, UP will ensure strong order intake for the portfolio at Rs 130/sh (1.4x (2) Strong balance sheet (9mFY16 standalone net company. D/E at -0.01x, (3) Fully invested BOT portfolio, (4) invested equity) . We have valued PNC’s toll projects using 13.5% 19.7% FY16-18E EPS CAGR and (5) High share of discount rate for arriving at NPV of the projects. NHAI EPC roads in the order book will result in We value the BOT business at Rs 130/sh (1.4x of lower working capital demand, as these projects PNC invested equity). We remain cautious on the have 10% interest-free client advance. PNC has 76 traffic pick-up in the Aligarh-Ghaziabad BOT days of debtor, one of the best in the industry. project, as current collections are about 50% Our target standalone P/E . Higher-than-estimated order intake may result in lower than estimate. Even with overloading and multiple is in line with road further stock re-rating as PNC has (1) Diversified full COD, the collections may remain ~30% below EPC peers, such as KNR presence in roads and dedicated freight corridor; estimates. the biggest beneficiary of government spending, Construction and J Kumar . We rate PNC as a BUY with SOTP of Rs 625/sh. Infra (2) Strong execution capability raises hopes of We value the (1) Standalone EPC business at Rs earning early-completion bonus (3-6% of project 496/share (15x one-year forward Mar-18 EPS) cost) leading to EBIDTA margin expansion, and (3) and (2) PNC BOT projects at Rs 130/sh. Likely support from captive order book in lieu of

any contraction in future EPC orders.

SOTP Valuation Valuation Valuation (INR Value per Share Segment FY18 Adjusted PAT Multiple We rate PNC as BUY with Methodology mn) (INR) SOTP-based target price of Standalone construction - EPC FY18 P/E 1,696 15 25,439 496 BOT Value FCFE Mar-17 6,648 130 Rs 625/sh SOTP Value 32,087 625

Source: HDFC sec Inst Research

Page | 21 PNC INFRATECH: INITIATING COVERAGE

Peer Valuations

EV/EBITDA (x) P/E (x) P/BV (x) Relative Valuation FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E Ashoka Buildcon 9.2 9.2 9.0 25.0 34.2 27.2 1.6 1.6 1.5 KNR Constructions 9.9 7.6 6.1 18.9 13.0 10.7 2.1 1.8 1.6 J Kumar Infraprojects 7.7 7.4 5.8 21.4 17.0 10.9 1.7 1.6 1.4 NCC 8.6 7.7 6.7 21.4 18.1 14.9 1.2 1.1 1.1 Sadbhav Engineering 15.4 13.3 10.0 31.8 24.3 16.4 3.3 2.9 2.5 ITD Cementation 10.8 8.0 5.6 33.6 17.3 11.4 3.2 2.7 2.2 PNC Infratech 9.9 8.8 7.7 21.5 17.9 15.0 2.0 1.8 1.6 Average 10.3 8.9 7.2 25.3 20.7 15.2 2.2 2.0 1.7 Source: HDFC sec Inst Research for ITD Cementation, FY16E implies CY15

Page | 22 PNC INFRATECH: INITIATING COVERAGE

Key catalysts Key risks to our BUY stance

. Early-completion bonus may ease pressure on . Banks’ reluctant to increase non-fund-based B/S, support growth: PNC expects to complete limits: PNC’s new order wins are contingent on the Agra-Lucknow Expressway by Dec-16E, banks providing non-fund-based limits, which can thereby making it eligible for the 6% (Rs 960mn) be as high as 10-20% of the order size. PNC, until early-completion bonus. Further, PNC received now, has not defaulted on payments and enjoys COD for Raebareli-Jaunpur BOT project on March sufficient fund lines. Any deterioration in the 8 — three months ahead of June-16E deadline. balance sheet may impact funds tie-ups. PNC has The management expects to receive partial semi- Rs 17bn of non-fund-based limits, of which it is annuity of Rs 320mn by Dec-16E. currently utilising Rs 11bn. This provides sufficient comfort on order bookings. . Strong order pipeline: In terms of the order pipeline, PNC will be the key beneficiary of NHAI’s . Localised presence in UP: PNC has ~65-70% of the annual roads ordering of 5,000-6,000km over order book exposed to UP and the rest in Bihar. FY17-18E (excludes MoRTH order of 3,000- These two states are seeing strong order traction 4,000km). Of the 3,400km (Rs 520bn) of roads owing to Central and state high political stakes. coming up for bidding over the next 3-6 months, Both states have weak infrastructure, but nearly half are in PNC-dominated states. Uttar contribute ~22% of Lok Sabha seats. Being Pradesh will award up to 1,000km, translating into politically crucial and with UP going to polls in an opportunity size of Rs 150bn for PNC. 2017, both states are investing heavily in building Additionally, the Lucknow-Ballia Expressway, with infrastructure. Being financially deficit, these total project cost Rs 140bn, is also a lucrative projects face cash-flow crunch or delays. This may prospect for the company. This will make new impact PNC’s execution negatively. The Central order wins of Rs 45bn an achievable task. government’s support is crucial to take up Although we have modeled FY17E new order infrastructure projects in UP and Bihar. intake at Rs 34bn, there is a high probability of PNC exceeding our estimate.

Page | 23 PNC INFRATECH: INITIATING COVERAGE

ANNEXURE

Upcoming Projects in Northern States of India NHAI projects to be awarded in FY16

Last Date of Project Length Bid Project Details Type of Project Cost State (Kms) Submission (Rs mn) Dec-15 Delhi - Meerut Expressway - Package I Hybrid Annuity 8.7 6,636 Delhi/UP Dec-15 Delhi - Meerut Expressway - Package II Hybrid Annuity 19.3 13,765 Delhi/UP Dec-15 Delhi - Meerut Expressway - Package III Hybrid Annuity 22.3 10,237 Delhi/UP Dec-15 4 laning of Meerut - Bulandshahr NH- 334 Hybrid Annuity 61.2 6,804 Uttar Pradesh Dec-15 4 laning of Varanasi Gorakhpur,Package-II EPC 72.2 8,566 Uttar Pradesh Dec-15 4 laning of Varanasi Gorakhpur,Package-III EPC 65.6 10,382 Uttar Pradesh Dec-15 4 laning of Varanasi Gorakhpur,Package-IV EPC 60.0 8,523 Uttar Pradesh Himachal Dec-15 4 Laning of Solan Kaithalighat Section of NH-22 Hybrid Annuity 22.9 5,221 Pradesh Himachal Dec-15 Upgradation of Kullu-Manali Section NH-21 EPC 37.3 2,186 Pradesh Dec-15 6 Laning of Aurangabad to Bihar - Jharkhand Border NH-2 BOT 69.6 10,055 Bihar Dec-15 6 Laning of Bihar- Jharkhand Border Section NH-2 BOT 152.0 27,687 Jharkhand Dec-15 4 Laning of Mahulia-Baharagora- Section of NH-33 EPC 71.6 8,233 Jharkhand 4 laning of Chutmalpur-Ganeshpur and Roorkee to Jan-16 Hybrid Annuity 53.3 8,099 UP/Uttarakhand Gagalheri Jan-16 4 laning of Gagalheri to Yamunanagar Hybrid Annuity 51.5 10,094 Uttar Pradesh Jan-16 4 laning of Rampur-Kathgodam Hybrid Annuity 43.4 6,159 Uttar Pradesh Jan-16 Construction of Sahibganj - Manihari Bypass Hybrid Annuity 21.9 19,056 Bihar/Jharkhand Himachal Jan-16 4 Laning of Takoli Kullu section of NH-21 Hybrid Annuity 28.7 4,049 Pradesh Himachal Jan-16 4 laning of Ner Chowk – Pandoh Bypass section of NH – 21 Hybrid Annuity 31.3 9,593 Pradesh Jan-16 4 laning of Haridwar-Nagina EPC 71.6 9,895 UP/Uttarakhand Jan-16 4 laning of Nagina-Kashipur EPC 98.8 12,908 UP/Uttarakhand Jan-16 6 laning of Chakeri Allahabad BOT 145.0 16,610 Uttar Pradesh Jan-16 O&M of Jhansi-Orai OMT 135.4 2,433 Uttar Pradesh Jan-16 4 laning of Rampur-Kathgodam NH-87 Hybrid Annuity 49.8 5,714 Uttarakhand 6 Laning of Bihar- Jharkhand Border (Chordaha) to Barwa Jan-16 BOT 150.8 27,687 Jharkhand Adda NH-2

Page | 24 PNC INFRATECH: INITIATING COVERAGE

Last Date of Project Length Bid Project Details Type of Project Cost State (Kms) Submission (Rs mn) Feb-16 4 laning of Lucknow Sultanpur Hybrid Annuity 127.4 16,619 Uttar Pradesh Feb-16 4laning of NH-131A Narenpur to Purnea (Package-II). Hybrid Annuity 49.0 11,607 Bihar Construction of Flyover/Underpass at IFFCO Chowk on Feb-16 EPC - 2,851 Haryana Delhi Gurgoan access controlled highway NH-8. Construction of Flyover/Underpass at Signature Tower Feb-16 EPC - 2,150 Haryana Delhi Gurgaon Access Controlled Highway on NH-8. Construction of Flyover/Underpass at Rajiv Chowk on Delhi Feb-16 EPC - 2,343 Haryana Gurgaon Access Controlled Highway on NH-8. Feb-16 6 Laning of Chakeri Allahabad BOT 145.0 16,610 UP Feb-16 4 Laning of Varanasi Gorakhpur,Package-III EPC 60.0 8,523 UP Mar-16 4 Laning of Barhi-Hazaribagh NH-33 EPC 41.3 3,237 Jharkhand Hybrid Himachal Mar-16 2 Laning with formation for 4 lane of Shimla Bypass NH – 22 27.5 12,238 Annuity Pradesh Hybrid Mar-16 4-lane Laddowal Bypass Linking NH-95 with NH-1 17.0 3,702 Punjab Annuity 4 Lane Elevated Highway between Samrala Chowk to Hybrid Mar-16 13.0 8,677 Punjab Ludhiana Municipal Limit of NH-95 Annuity Mar-16 2/4 Laning of Govindpur (Rajgunj)- Chas-NH-32 EPC 56.9 4,580 Jharkhand 1,989 320,052 Source: NHAI, Company, HDFC sec Inst Research

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Income Statement (Standalone) Balance Sheet (Standalone) Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Net Revenues 11,521 15,610 19,375 22,692 26,893 SOURCES OF FUNDS

Growth (%) (11.6) 35.5 24.1 17.1 18.5 Share Capital - Equity 398 398 513 513 513 Material Expenses 3,814 5,717 6,781 8,010 9,493 Reserves 5,892 6,786 12,153 13,525 15,164 Employee Expenses 577 737 892 1,071 1,231 Total Shareholders’ Funds 6,290 7,184 12,666 14,038 15,677 Other Operating Expenses 5,712 6,990 9,106 10,597 12,586 Long Term Debt 553 528 390 390 390 EBITDA 1,418 2,166 2,595 3,014 3,583 Short Term Debt 2,193 3,003 803 2,203 3,103 EBITDA Margin (%) 12.3 13.9 13.4 13.3 13.3 Total Debt 2,747 3,530 1,193 2,593 3,493 EBITDA Growth (%) (11.7) 52.7 19.8 16.1 18.9 Net Deferred Taxes 27 4 4 4 4 Depreciation 248 364 525 550 699 Long Term Provisions & Others 1,775 2,499 2,641 2,511 2,387 EBIT 1,170 1,803 2,070 2,464 2,883 TOTAL SOURCES OF FUNDS 10,839 13,218 16,503 19,145 21,561 Other Income (Including EO APPLICATION OF FUNDS 106 138 136 135 143 Items) Net Block 1,528 2,105 2,378 2,628 2,779 Interest 234 462 319 376 441 CWIP 16 70 70 70 70 PBT 1,042 1,478 1,888 2,223 2,585 Investments 3,510 4,235 4,885 4,935 5,585 Tax (Incl Deferred) 341 475 661 758 853 Total Non-current Assets 5,054 6,410 7,333 7,633 8,434 RPAT 701 1,004 1,227 1,465 1,732 Inventories 1,048 2,225 2,389 2,798 3,316 EO (Loss) / Profit (Net Of Tax) 44 49 43 39 36 Debtors 3,436 3,667 4,512 5,595 6,631 APAT 657 954 1,184 1,425 1,696 Other Current Assets 2,262 3,263 4,829 5,655 6,776 APAT Growth (%) (14.9) 45.3 24.1 20.4 19.0 Cash & Equivalents 999 212 838 1,629 1,341 Adjusted EPS (Rs) 16.51 23.98 23.08 27.78 33.05 Total Current Assets 7,745 9,367 12,567 15,677 18,064 EPS Growth (%) (14.9) 45.3 (3.7) 20.4 19.0 Creditors 700 1,081 1,168 1,554 1,842 Source: Company, HDFC sec Inst Research Other Current Liabilities & Provns 1,261 1,478 2,229 2,611 3,095 Total Current Liabilities 1,960 2,559 3,397 4,165 4,937 Net Current Assets 5,785 6,808 9,170 11,512 13,127 TOTAL APPLICATION OF FUNDS 10,839 13,218 16,503 19,145 21,561 Source: Company, HDFC sec Inst Research

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Cash Flow (Standalone) Key Ratios (Standalone) Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Year ending March FY14 FY15 FY16E FY17E FY18E Reported PBT 1,042 1,478 1,888 2,223 2,585 PROFITABILITY (%)

Non-operating & EO items 8 9 - - - GPM 66.9 63.4 65.0 64.7 64.7 Interest expenses 172 373 183 241 298 EBITDA Margin 12.3 13.9 13.4 13.3 13.3 Depreciation 248 364 525 550 699 APAT Margin 6.1 6.4 6.3 6.5 6.4 Working Capital Change 514 (1,094) (1,593) (1,681) (2,027) RoE 11.7 14.9 12.4 11.0 11.7 Tax Paid (331) (498) (661) (758) (853) RoIC (or Core RoCE) 12.4 14.0 12.5 12.9 13.2 OPERATING CASH FLOW ( a ) 1,653 632 342 575 703 RoCE 8.6 11.0 9.7 9.6 10.0 Capex (535) (1,012) (800) (800) (850) EFFICIENCY

Free cash flow (FCF) 1,118 (380) (458) (225) (147) Tax Rate (%) 32.7 32.1 35.0 34.1 33.0 Investments (478) (636) (650) (50) (650) Fixed Asset Turnover (x) 4.0 4.1 4.2 4.2 4.3 INVESTING CASH FLOW ( b ) (1,013) (1,648) (1,450) (850) (1,500) Inventory (days) 33.2 52.0 45.0 45.0 45.0 Debt Issuance/(Repaid) 211 784 (2,338) 1,400 900 Debtors (days) 108.8 85.8 85.0 90.0 90.0 Interest Expenses (234) (462) (183) (241) (298) Other Current Assets (days) 71.7 76.3 91.0 91.0 92.0 FCFE 1,095 (58) (2,978) 934 455 Payables (days) 22.2 25.3 22.0 25.0 25.0 Share Capital Issuance - - 4,347 0 0 Other Current Liab & Provns (days) 39.9 34.6 42.0 42.0 42.0 Dividend - (93) (93) (93) (93) Cash Conversion Cycle (days) 151.6 154.2 157.0 159.0 160.0 FINANCING CASH FLOW ( c ) (23) 229 1,734 1,066 509 Debt/EBITDA (x) 1.9 1.6 0.5 0.9 1.0 NET CASH FLOW (a+b+c) 617 (788) 626 791 (288) Net D/E (x) 0.3 0.5 0.0 0.1 0.1 Closing Cash & Equivalents 999 212 838 1,629 1,341 Interest Coverage (x) 5.0 3.9 6.5 6.6 6.5 Source: Company, HDFC sec Inst Research PER SHARE DATA (Rs)

EPS 16.5 24.0 23.1 27.8 33.1 CEPS 23.8 34.3 34.1 39.3 47.4 Dividend 0.8 1.9 1.5 1.5 1.5 Book Value 158.0 180.5 246.9 273.6 305.6 VALUATION

P/E (x) 30.1 20.7 21.5 17.9 15.0 P/BV (x) 3.1 2.7 2.0 1.8 1.6 EV/EBITDA (x) 15.2 10.6 9.9 8.8 7.7 EV/Revenues (x) 1.9 1.5 1.3 1.2 1.0 OCF/EV (%) 7.7 2.7 1.3 2.2 2.5 FCF/EV (%) 5.2 (1.6) (1.8) (0.9) (0.5) FCFE/Mkt Cap (%) 5.5 (0.3) (11.7) 3.7 1.8 Dividend Yield (%) 0.1 0.4 0.3 0.3 0.3 Source: Company, HDFC sec Inst Research

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Income Statement (Consolidated) Balance Sheet (Consolidated) Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Net Revenues 13,600 18,609 23,037 28,249 33,079 SOURCES OF FUNDS

Growth (%) 4.2 36.8 23.8 22.6 17.1 Share Capital - Equity 398 398 510 510 510 Material Expenses 4,309 6,174 9,090 10,626 12,358 Reserves 6,699 8,313 13,003 14,199 15,973 Employee Expenses 619 814 892 1,071 1,231 Total Shareholders Funds 7,097 8,711 13,513 14,709 16,483 Other Operating Expenses 6,918 8,823 9,106 10,597 12,586 Minority Interest 1 1 1 1 1 EBITDA 1,754 2,799 3,948 5,954 6,904 Long Term Debt 7,431 13,066 16,607 15,893 14,901 EBITDA Margin (%) 12.9 15.0 17.1 21.1 20.9 Short Term Debt 2,819 3,859 1,193 2,593 3,493 EBITDA Growth (%) 12.3 59.5 41.1 50.8 16.0 Total Debt 10,250 16,924 17,800 18,485 18,393 Depreciation 402 603 1,178 1,738 2,053 Net Deferred Taxes 31 10 10 10 10 EBIT 1,353 2,196 2,770 4,216 4,852 Long Term Provisions & Others 1,030 2,587 3,202 3,927 4,598 Other Income (Including EO TOTAL SOURCES OF FUNDS 18,409 28,232 34,526 37,131 39,485 108 121 136 135 143 Items) APPLICATION OF FUNDS

Interest 609 925 1,170 2,261 2,277 Net Block 6,489 6,833 25,491 24,553 23,351 PBT 852 1,392 1,737 2,090 2,718 CWIP 5,926 14,822 70 70 70 Tax (Incl Deferred) 346 479 684 811 930 Investments 1,051 938 715 692 738 RPAT 506 913 1,052 1,279 1,788 Total Non-current Assets 13,466 22,593 26,276 25,315 24,158 Minority Interest 45 (0) - - - Inventories 1,048 2,225 2,397 2,998 3,615 Profit/Loss from Associates - - (222) (23) 45 Debtors 1,917 2,644 3,764 5,770 6,824 APAT 552 913 830 1,256 1,834 Other Current Assets 2,619 3,101 4,601 5,601 6,501 APAT Growth (%) (32.2) 80.3 15.2 21.5 39.9 Cash & Equivalents 1,156 411 882 1,610 3,260 Adjusted EPS (Rs) 13.86 22.94 16.27 24.62 35.95 Total Current Assets 6,740 8,381 11,644 15,978 20,201 EPS Growth (%) (26.1) 65.5 (29.1) 51.3 46.0 Creditors 875 1,111 1,376 1,687 1,976 Source: Company, HDFC sec Inst Research Other Current Liabilities & Provns 922 1,631 2,019 2,475 2,899 Total Current Liabilities 1,797 2,742 3,394 4,162 4,874 Net Current Assets 4,943 5,639 8,250 11,816 15,327 TOTAL APPLICATION OF FUNDS 18,409 28,232 34,526 37,131 39,485 Source: Company, HDFC sec Inst Research

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Cash Flow (Consolidated) Key Ratios (Consolidated) Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Year ending March FY14 FY15 FY16E FY17E FY18E Reported PBT 852 1,392 1,737 2,090 2,718 PROFITABILITY (%)

Non-operating & EO items (58) (60) (136) (135) (143) GPM 68.3 66.8 60.5 62.4 62.6 Interest expenses 609 925 1,170 2,261 2,277 EBITDA Margin 12.9 15.0 17.1 21.1 20.9 Depreciation 402 603 1,178 1,738 2,053 APAT Margin 3.7 4.9 4.6 4.5 5.4 Working Capital Change (84) 107 (1,524) (2,114) (1,189) RoE 7.8 11.6 9.5 9.1 11.5 Tax Paid (333) (500) (684) (811) (930) RoIC (or Core RoCE) 5.0 5.4 5.1 7.4 9.0 Profit loss from Associates RoCE 5.7 6.5 5.6 7.4 8.6

OPERATING CASH FLOW ( a ) 1,388 2,468 1,740 3,029 4,786 EFFICIENCY

Capex (5,419) (9,862) (5,084) (800) (850) Tax Rate (%) 40.6 34.4 39.4 38.8 34.2 Free cash flow (FCF) (4,032) (7,394) (3,343) 2,229 3,936 Fixed Asset Turnover (x) 1.7 2.1 0.8 1.0 1.1 Investments (128) 114 Inventory (days) 28.1 43.6 38.0 38.7 39.9

INVESTING CASH FLOW ( b ) (5,547) (9,749) (5,084) (800) (850) Debtors (days) 51.5 51.9 59.6 74.6 75.3 Debt Issuance/(Repaid) 5,157 7,484 876 685 (92) Other Current Assets (days) 70.3 60.8 72.9 72.4 71.7 Interest Expenses (542) (855) (1,034) (2,127) (2,134) Payables (days) 23.5 21.8 21.8 21.8 21.8 FCFE 583 (766) (3,501) 788 1,710 Other Current Liab & Provns (days) 24.7 32.0 32.0 32.0 32.0 Share Capital Issuance - - 4,032 - - Cash Conversion Cycle (days) 101.7 102.6 116.7 131.9 133.1 Dividend (35) (93) (60) (60) (60) Debt/EBITDA (x) 5.8 6.0 4.5 3.1 2.7 FINANCING CASH FLOW ( c ) 4,580 6,536 3,814 (1,501) (2,285) Net D/E (x) 1.3 1.9 1.3 1.1 0.9 NET CASH FLOW (a+b+c) 420 (745) 471 728 1,650 Interest Coverage (x) 2.2 2.4 2.4 1.9 2.1 Closing Cash & Equivalents 1,156 411 882 1,610 3,260 PER SHARE DATA (Rs)

Source: Company, HDFC sec Inst Research EPS 13.9 22.9 16.3 24.6 35.9 CEPS 22.8 38.1 43.7 59.1 75.3 Dividend 0.8 1.0 1.0 1.0 1.0 Book Value 178.3 218.8 264.9 288.4 323.1 VALUATION

P/E (x) 35.8 21.6 30.5 20.1 13.8 P/BV (x) 2.8 2.3 1.9 1.7 1.5 EV/EBITDA (x) 16.4 13.0 10.7 7.1 5.9 EV/Revenues (x) 2.1 1.9 1.8 1.5 1.2 OCF/EV (%) 4.8 6.8 4.1 7.2 11.8 FCF/EV (%) (14.0) (20.4) (7.9) 5.3 9.7 FCFE/Mkt Cap (%) 3.0 (3.9) (13.8) 3.1 6.8 Dividend Yield (%) 0.2 0.2 0.2 0.2 0.2 Source: Company, HDFC sec Inst Research

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RECOMMENDATION HISTORY Date CMP Reco Target PNC Infratech TP 650 30-Mar-16 496 BUY 625 600 550 500 450 400 Rating Definitions 350 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period 300 NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period 15 16 15 15 16 15 15 15 16 15 15 ------

Jul SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Jan Jun Oct Sep Feb Dec Aug Nov Mar May

Page | 30 PNC INFRATECH: INITIATING COVERAGE

Disclosure: We, Parikshit D Kandpal, MBA, and Prabhat Anantharaman, MS (Finance) authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No

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