Construction gains traction: Robust order book, lower debt make PNC Infratech attractive

ET INTELLIGENCE GROUP: In the past one year, investors have shown increasing interest in roads and construction companies in the hope of better economic growth in the coming quarters. The ET Construction Index, an index which covers leading roads and construction companies, rose by 91.3 per cent while the benchmark Nifty fell by 5 per cent.

Though a large number of such stocks have surged, there are a few which still are long-term investments. One of them is Uttar Pradesh-based PNC Infratech.

The company has eight road projects in Uttar Pradesh on toll and annuity basis. Of these, seven are operational. A few noteworthy projects of the company are Ghaziabad-Aligarh and Bareilly-Almora. A large number of the company’ projects are located in industrial belts where traffic is fairly strong.

In FY17, the company’s Raebareli-Jaunpur project is likely to start operations, which will boost toll revenue. Having a concentrated presence in a geography works better for construction companies since it saves costs related to construction activities. Besides, it also increases the likelihood of securing road projects due to proven record. PNC has executed 48 major infrastructure projects across 13 states. At present, the company is executing 20 project across various sectors.

The company has robust engineering, procurement and construction (EPC) order book of Rs 3,570 crore and it also has L1 order of Rs 810 crore. This gives revenue visibility of two to three years. In addition, the company’s borrowings are relatively low compared with peers. Its net debt-toequity ratio is 0.1, which is quite attractive for an infrastructure player.

For FY17 estimated earnings, the company is trading at price-earnings (P/E) multiple of 17. Its bigger peers such as Sadbhav Engineering and Ashoka Buildcon are trading at 29 and 30.4, respectively. Investors with a horizon of two years may consider the stock for further research.