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  • Stock recommendation: Nagarjuna Construction Co Ltd – BUY – TP Rs.151

    Publish date: August 14, 2018

    Result Update

    NCC's net profit for the quarter was ahead of our estimates led by better than expected execution and margins. Robust order book provides healthy visibility of future earnings and company maintains its revenue target of Rs 110 bn in FY19. Balance sheet is also much cleaner and company doesn't expect any large provisioning on pending cases where arbitration is going on with the client.

    Key Highlights

    • Revenues for Q1FY19 stood well ahead of our estimates. Operating margins witnessed an improvement and company expects to maintain margins around these levels. Net profit performance stood ahead of our estimates led by higher margins and improved execution despite higher tax rate for the quarter.
    • Order inflow for the company stood healthy at Rs 41.7 bn during Q1FY19 taking the order book to Rs 328 bn. Healthy order inflows provide good visibility on revenue growth.
    • Consolidated net profit is ahead of standalone net profit indicating that subsidiaries losses have reduced. No large provisioning for subsidiaries is required going ahead.

    Valuation & Outlook

    • At Rs 97, stock is trading at 13.3x and 11.9x P/E and 7.2x and 6.0x EV/EBITDA on FY19 and FY20 estimates respectively. We maintain our estimates but reduce our valuation multiples to 17x versus 19x earlier to factor in delays in delays in some projects and arbitration risks and arrive at a revised price target of Rs 151 based on sum of the parts valuation on FY20 estimates. (Rs 167 earlier).
    • We maintain BUY recommendation on NCC Ltd. Key risk to our estimates and recommendation would come from adverse ruling on power project cases where arbitration is going on or delays in receivables.


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