Stock Idea - PNC Infra

SECTOR BACKGROUND
Awarding activity in road sector has picked up pace in the past two years and is expected to remain firm in the next 2-3 years. In FY16, the government awarded 10000 km of road projects and in the current financial year, it targets to award over 25000 km or Rs 3 trillion of road projects. This trend is expected to continue in the coming years.

COMPANY BACKGROUND
•    PNC Infra Ltd (PNC) is a north-based EPC/BOT contractor
•    Strong order book visibility: PNC has an order book of ~ Rs 5100 crores (2.5x FY16 EPC revenues). Further, PNC has won Rs 1374 crores worth of orders won from April 2016 till date, financial closures of which are expected to be achieved by October 2016. 
•    Strong execution track record: PNC has a proven track record of early completion of projects in a sector marred by inordinate delays. It has the distinction of being among the
first few to receive an early completion bonus from NHAI.
•    Multiple operating efficiencies: PNC’s four pronged strategy:

    a.    conservative bidding
    b.    operating in a core geographic cluster
    c.    ‘No subcontracting’ policy in critical construction activity and
    d.    a large equipment bank, have enabled the company expand its EBITDA margin 500 bps during FY13-FY16 to ~17%.

•    In FY16, PNC enjoyed a 11% market share of the NHAI’s Rs 48,100 crore EPC order book, second only to the infrastructure behemoth, L&T (12% share).
•    PNC has executed ~75-80% of its road projects in UP, Jharkhand, Bihar and Rajasthan. These states have a robust pipeline of road EPC projects over 2016-17 – 4 states alone account for 36% of the 6631 kms of road projects that NHAI intends to award in FY16.
•    The govt is now acquiring 80-90% of the land before announcing the date for commencement for construction
•    Gathered enough qualification credentials to independently bid for a single project to a tune of over Rs. 3,000
•    Currently co is executing 16 projects in roads & airport runway sector
•    Currently we have 7 operational BOT projects of which 5 are Road BOT projects, 1 is Road OMT project and 1 is Industrial Development project
•    Our consolidated net worth as on June 30, 2016 is Rs. 1,364 crores whereas total debt is Rs. 1,722 crores. Net debt to equity comes at consolidated basis comes at 1.13 times.
•    There are 17 new EPC orders worth Rs 15,000 cr that will be up for bidding
•    Toll Revenues - Gwalior - Etawah MP Highway is Rs. 15.5 crores; Kanpur - Ayodhya is Rs. 69.8 crores; Kanpur Highway is Rs. 24.7 crores and Bareilly - Almora was Rs. 9.6 crores; Ghaziabad - Aligarh is 37 - 38 lakhs per day
 •    PNC has long history in the roads sector with over 15 years of experience in executing NHAI projects. PNC has track record of timely and before schedule completion of projects and received early completion bonus.
•    PNC is focused on the northern region and is expected to be a strong contender for grabbing future opportunity in road construction from poll bound states like UP and Punjab.
•    PNC has robust current order book of Rs 64.7 bn and further targets to add another ~Rs 40 bn of orders in the rest of the year based on robust pipeline of orders specifically in road space. This gives high revenue growth visibility for the next 2-3 years.



Understanding the Hybrid Model of Road Development
Funding - The government will contribute 40% of the project cost in the first five years through annual payments (annuity); developer to raise remaining 60% through debt or equity. Semi-annual annuity payments will be paid to the developer for the balance 60% of the project cost

Disbursement - Government's 40% contribution will be disbursed in accordance with the project completion milestones (24%, 40%, 60%, 75%, and 90%)

Revenue Collection -
i) Responsibility of NHAI
ii) The Government / NHAI will collect the toll and pay the developer annuity payments over 15 years along with interest thereon at bank rate + 3%. The developer will also receive O&M payments bi-annually along with annuity payments.
iii) All project payments will be inflation indexed.

RISKS & CONCERNS
•    Slowdown in road sector
•    Aggressive bidding of projects
•    Inflows of large size BOT projects





FINANCIALS
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Disclosure: I am invested in the stock and my views are likely to be biased. Please do your own due diligence or consult a SEBI registered investment analyst.

Stock Update - Sagar Cements: October despatches

Despatches for October 2016 - Good traction in AP & Karnataka.

Hester Bio - Notes from the Annual Report - 2016

• Cumulative production capacity of 6 bn doses once the Nepal capacity goes online
• 2015-16 performance was achieved despite a 6-month trough in India's poultry sector that affected the sector for 3 quarters. The trough was the result of high feed cost and low realization of poultry output of meat and eggs. This resulted in a lower replacement of chicks.
• Started trial production of two batches in its Nepal plant and submitted these to regulatory authorities in 2 African countries
• HBS has decided to make a strategic shift to health products over dependence on poultry products
• Focus on exports to de-risk company from exclusively depending on domestic market
• Poultry Vaccines Segment: Introduced two Poultry Vaccines namely the Salmonella Live Vaccine and the Inclusion Body Hepatitis Vaccine
• Large Animal Vaccines: started manufacturing and marketing of large animal vaccines. Currently, manufactures PPR and goat pox vaccine. The Indian plant at Mehsana produces the PPR Live vaccine strain meant for India (sungri strain); the Nigerian strain will be made in the Nepal plant for export markets
• Brucella abortus S19 vaccine will be commercialized this year
• Large Animal health Products Segment: Comprises of medicinal products, feed additives & disinfectants. HBS does not manufacture products themselves. The outlook for growth is robust and can outperform the other divisions in the near future.

Notes from Annual Report 2016: Poly Medicure

• Revenue was 402.86 cr vs 381.9 cr in FY15
• Net profit was 47.30 cr vs 61.01 cr (including 19.57 cr of exceptional items) in FY15
• EPS was 10.72 vs 13.83 in FY15
  
• 
  PML is starting a new R&D center with an investment of 12.5cr which is to be operational by Q3 2016
• New green field project at IMT Faridabad which is to be operational by Q3 2017 on an investment of 60cr
• PML to focus on new market opportunities in Oncology, Nephrology & Respiratory Care segments
• Product expansion is in process for Infusion therapy and Blood Management
• PML is planning to launch 8-10 new products in FY17
• PML is now exporting products to 95 countries
• PML is now present in 3000 key hospitals in India and plans to expand to 5000 hospitals in next 2 years
• Expanded the sales and marketing team with 80 new team members
  
• The Indian medical device market is the top 20 in the world and 4th in Asia after Japan, China & South Korea
• The medical devide sector was valued at USD 6.3 in 2013 and is expected to grow to USD25-30 by 2025
• PML is the leading exporter of infusion therapy, blood management, gastroenterology, surgery and wound drainage,
  anesthesia and urology products
• Over 65% of revenues come from exports
• PML has 144 product and process patents globally; filed for additional 394 patents in India and worlwide

Notes fom Annual Report - Supreme industries

•    No of distributors have gone up from 2469 to 2699
•    Value added product share has gone up from 34.2% to 36.73%
•    Current average monthly borrowing is 401 cr. SIL expects to reduce it to 300 cr in FY17
•    Supreme Industries Sharjah is exporting products to 15 countries - GCC, Africa, Australia, UK, Germany & Indian sub-continent. It has made inroads into Maldives and re-entered Saudi Arabia. It has also penetrated Solvent Cement market in Australia
•    Statutory auditors M/s Choggmal & co have stepped down and has been replaced by M/s Lodha & Co.
•    Polymer consumption has increased by 14% in volume terms which is double of GDP, something which did not happen in the last decade.

PLASTIC PIPING SYSTEMS
•    New plant at Kharagpur has started production. Full capacity to be scaled up by June 2016.
•    Further expansion of pipe manufacturing is expected at Kharagpur plant
•    cPVC volume growth was 23.7%; cPVC manufacturing has stabilized at Kharagpur
•    Roto moulding plant is being commissioned at Kharagpur, to start by April end.
•    HDPE piping systems gorwth was at 24.09%
•    SIL has launched a variety of septic tanks in technology tie-up with a South African company. Many other varieties are expected to be launched for underground water storage
•    SIL has produced multilayer foam pipe of 200 mm diameter, BIS certification in process
•    SIL has developed a cheap & economic model of manhole cover
•    In process to setup a PVC plant at Jalgaon to produce 20,000 tons at full capacity and is expected to go on stream by Mar 2017
•    Submersible pipes are getting good traction. Monthly sales are expected to rise to 750 tons in FY17 from 270 tons.
•    Maharashtra Fire Department has issued a directive that makes installments of fire sprinklers mandatory in every room for residential building above 45 m and in common areas for buildings between 25m to 45m. SIL has tied up with FlameGuard of USA to manufacture and sell these sprinkler systems. SIL is planning to sell the same product in Sri Lanka as well.
•    The portfolio of bath fittings has reached 90 items. Chrome fittings are likely to be launched this year

FURNITURE
•    SIL has introduced 8 new models this year and plans to add 7 new models this year.
•    SIL is looking to expand into export market with their new line of furniture
•    New plant being put up at Kharagpur; to start in the Q1 of FY17
•    Increased distribution channel partners to 746 and have started selling online as well; partnering with flipkart, amazon, snapdeal, pepperfry etc

INDUSTRIAL PRODUCTS
•    SIL started manufacturing complete coolers for one company. Expects good growth in this segment.
•    BOSCH, a new customer, has setup a large manufacturing plant for home appliances. SIL expects good orders from them.
•    Working closely with Honda cars on multiple models

MATERIAL HANDLING
•    New facility setup and started in Malanpur (M.P) for roto moulded products
•    Two new plants being setup - at Kharagpur and Kanpur; to be operational in April/June 2016

PACKAGING PRODUCTS
•    A specialty product - high gloss film has been successfully developed
•    The PPD plant at Kharagpur is now fully operational and is expected to generate a revenue of Rs 50cr

COMPOSITE CYLINDERS
•    Received initial educational order from HPCL for 5 & 10 kg cylinders; dispatches expected in April 2016
•    SIL received orders for 7.5 & 15 kg cylinders as well
•    FY17 may be a transformational year for this division

Getting Back to Basics - Presentaion at Investment Meet

We had the third meeting of your investment forum today. The venue was at Hotel Lindsay, bang opposite New Market. Thanks to Raghav for being gracious enough to arrange for the venue.