Sharekhan has reiterated its BUY recommendation on PNC Infratech Limited, with a revised target price of Rs 400, offering a potential upside from the current market price of Rs 299. This recommendation comes amid short-term challenges including revenue underperformance due to project delays, heavy monsoons, and disqualification by MoRTH. Despite these headwinds, the company retains its order inflow guidance of Rs 13,000–15,000 crore for FY2025 and expects significant growth in standalone revenue and margins from FY2026 onward.

Sharekhan Maintains BUY Rating on PNC Infratech

Recommendation Overview
Sharekhan underscores PNC Infratech’s robust long-term fundamentals despite short-term challenges. The stock is recommended as a BUY, with a revised price target of Rs 400, reflecting its potential to rebound from operational challenges and benefit from a healthy order book.

Short-Term Challenges Impact FY2025 Performance

Revenue Decline

Standalone revenues in Q2FY2025 stood at Rs 1,149 crore, down 32% YoY, primarily due to heavy monsoons and project delays.
FY2025 revenue guidance has been revised downward to a 15–20% decline YoY from the previous 10% decline estimate.
Profitability Under Pressure

Operating profit margins (OPM) decreased to 11.6% in Q2FY2025, compared to 13.4% in Q2FY2024.
Standalone net profit also declined by 42% YoY to Rs 80.9 crore, reflecting lower revenue and contracting margins.
MoRTH Disqualification

The company faced a setback due to disqualification by the Ministry of Road Transport and Highways (MoRTH) from tendering activities for one year starting October 2024. This has impacted its growth visibility in key government projects.

Order Book and Future Growth

Order Inflow Guidance Retained

Despite challenges, the company maintains its Rs 13,000–15,000 crore order inflow target for FY2025.
So far in FY2025, PNC has bagged orders worth Rs 6,700 crore, with an additional Rs 6,000–8,000 crore expected in H2FY2025.
Robust Order Book

The company’s total order book stands at Rs 19,900 crore, offering strong revenue visibility for the next two years.
Approximately 65% of the order book comes from highways, while the rest is spread across water, canal, and railways projects.
Future Tender Opportunities

PNC is actively pursuing bids worth Rs 25,000 crore, including Rs 11,000 crore from state and central government agencies excluding MoRTH and NHAI.

Medium-Term Outlook: Recovery in FY2026

Growth Projections

Standalone revenues are projected to grow by over 30% YoY in FY2026, driven by a low base and anticipated pickup in execution rates.
OPM is expected to improve to 13% in FY2026, from the current guidance of 12–12.5% for FY2025.
Asset Monetization

PNC plans to divest 10 of its 12 assets by FY2025-end, which is expected to deleverage its balance sheet and free up equity capital for future investments.
The total enterprise value (EV) of these assets is Rs 9,006 crore, with equity investments of Rs 1,739 crore and debt outstanding of Rs 6,480 crore.

Valuation and Risks

Valuation Metrics

The stock currently trades at an implied P/E of 12x FY2026E earnings, with a projected EPS of Rs 22.6 for FY2026.
The revised price target of Rs 400 reflects a balance between near-term uncertainties and long-term growth prospects.
Risks

Delays in project execution or order inflows could significantly impact revenue and earnings.
MoRTH disqualification may limit opportunities in high-value government projects.
Rising interest rates and input costs pose additional risks to profitability.

Investment Rationale

Sector Strength

Infrastructure spending remains a government priority, with Rs 20 lakh crore expected to be invested in the road sector by FY2025.
Proactive payments from NHAI and easing supply chain constraints are improving industry execution rates.
Company Fundamentals

PNC’s execution capabilities, strong balance sheet, and robust order book position it as a preferred pick in the infrastructure sector.
Asset monetization efforts are expected to unlock shareholder value and support future growth.