For 1QFY2017, PNC Infratech (PNC) reported top-line growth of 18.6% while the bottom-line grew by substantial 145.6% yoy. The top-line growth was driven by strong execution across Agra-Firozabad and Varanasi-Gorakhpur road projects. Despite strong execution, decline in raw material and other expenses led to 81bp yoy decline in EBITDA margin to 13.0%. A 11.6% yoy EBITDA growth coupled with tax benefits and MAT credit led PAT grow by 145.6% yoy. PAT margins stood at 12.4%, rose significantly on a yoy basis.
Outlook and valuation: Considering the strong uptick in roads and highways EPC award activity especially in north India, where PNC has more comfort, and given its past track record and recent wins, we expect the standalone entity to report 20.1% top-line CAGR over FY2015-2017E. With normal tax rate applicable from FY2018, the bottom-line growth would be of -3.3% CAGR during the same period. Accordingly, RoEs would decline from 23.3% in FY2016 to 13.9% in FY2018E. We are also now comforted that the consolidated Balance Sheet would peak from FY2017E onwards. Using the SoTP valuation methodology we arrive at a FY2018E based price target of `143. Given the 19% upside in stock form the current levels, we recommend BUY rating on the stock.