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Shares of PNC Infratech, a civil construction company, have witnessed a steep decline over the past two days, plummeting 35% and hitting a 52-week low of Rs 299 on Tuesday. The stock extended its previous day’s fall, dropping 18% on the National Stock Exchange (NSE), as investors reacted to disqualification news related to the company’s participation in government tenders.
The Ministry of Road Transport and Highways (MoRTH) disqualified PNC Infratech and its subsidiaries from bidding for any of its tenders for a one-year period, effective from October 18, 2024. This action follows an investigation linked to a First Information Report (FIR) filed by the Central Bureau of Investigation (CBI) in June 2024. The company had notified the stock exchanges about this development on October 19, 2024.
Stock plummets Amid high trading volumes
By 09:42 AM on Tuesday, PNC Infratech’s stock was trading 7% lower at Rs 342.25 amid heavy trading volumes. Around 7.25 million shares, representing 2.82% of the company’s total equity, had changed hands on the NSE and BSE. This sharp sell-off is a direct reaction to the MoRTH’s decision, which raises concerns about the company’s future ability to secure government contracts.
The disqualification order affects PNC Infratech, as well as its subsidiaries PNC Khajuraho Highways Private Limited and PNC Bundelkhand Highways Private Limited. The MoRTH’s decision came after a personal hearing where PNC Infratech and its subsidiaries submitted evidence in their defense. However, the ministry proceeded with the disqualification, citing concerns related to the FIR filed earlier this year.
Disqualification details and company response
The disqualification order stems from a CBI investigation into PNC Infratech’s operations. While specific details of the investigation have not been disclosed, it is believed to involve violations outlined in the FIR. Despite this setback, PNC Infratech’s management has maintained that the disqualification will not materially affect the company’s ongoing development, operations, and maintenance (O&M) activities, including those of the two Special Purpose Vehicles (SPVs) affected by the order.
As of the September quarter of FY25, PNC Infratech’s order book stood at Rs 18,730 crore, representing a book-to-bill ratio of 2.5x. The company had secured Rs 4,630 crore worth of orders in the June quarter (Q1FY25) and guided for additional order inflows of Rs 8,000 crore for FY25. Notably, PNC also won a Rs 2,040 crore project from the City and Industrial Development Corporation (CIDCO) in the September quarter (Q2FY25).
Analyst downgrade and future concerns
Following the MoRTH disqualification, analysts at ICICI Securities downgraded PNC Infratech from a ‘Buy’ rating to ‘Hold,’ assigning a revised target price of Rs 400, down from Rs 620 previously. The downgrade reflects concerns about the company’s ability to secure new orders, particularly in light of the one-year disqualification from central government tenders. Analysts also noted the potential for aggressive bidding in state highway and non-road segments, which PNC may now rely on for future order inflows.
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While the company has emphasized that the disqualification will not impact its asset monetization plans, ICICI Securities highlighted the need to monitor updates related to the monetization of assets under PNC Khajuraho Highways and PNC Bundelkhand Highways, both of which are affected by the MoRTH order.
Legal challenge by PNC infratech
In response to the disqualification, PNC Infratech informed the stock exchanges on Monday that it had filed three separate Writ Petitions on October 21, 2024, before the High Court of Delhi. These petitions challenge the ministry’s order and seek relief through ad-interim orders that would stay the implementation of the disqualification.
The company has requested the Delhi High Court to halt the effect and operation of the MoRTH order until the petitions are fully adjudicated. The outcome of these legal challenges will be critical in determining the company’s short- to medium-term prospects.
The sharp decline in PNC Infratech’s stock reflects investor concerns over the impact of the MoRTH disqualification on the company’s ability to secure government contracts, a key driver of its revenue. While PNC Infratech has moved to challenge the order in court, the uncertainty surrounding the legal proceedings and potential delays in securing new contracts have rattled investor confidence, leading to a 35% drop in the company’s stock price over two days. The market will closely watch for updates on the legal front and any potential recovery in the stock.
