Buy Nagarjuna Construction Company Ltd : Execution to pick up ahead - ICICI Direct
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Buy Nagarjuna Construction Company Ltd For Target Rs.105
Execution to pick up ahead…
About the stock: NCC is one of the leading construction companies in India with a presence across varied verticals of the infrastructure space such as buildings, roads, water, mining and electrical. The order book was robust at | 39,087 crore.
* Well-diversified order backlog, robust execution capabilities, proficient management and strong focus on debt reduction and working capital are expected to outline NCC over the next few years.
Q1FY22 Results: NCC’s Q1FY22 performance was on expected lines - strong growth on depressed base YoY and QoQ decline owing to second wave impact.
* Revenue improved 60.6% YoY to | 1,892.6 crore, on the washout base of Q1FY21. However, on a QoQ basis, topline declined 27.7%, mainly dragged by disruptions caused by the second wave of Covid-19
* EBITDA was at | 199.7 crore, up 72.7% YoY, with margin at 10.6%
* PAT was at | 51.7 crore, up 205.3% YoY and down 55% QoQ
What should investors do?
NCC’s share price has grown ~16% over the past five years (from ~| 77 in August 2016 to ~| 89 levels in August 2021).
* We maintain our BUY rating on the company
Target Price and Valuation: We value NCC at | 105/share.
Key triggers for future price performance:
* Firmly placed to capitalise on huge infrastructure pipeline; continued momentum in awarding activities to translate into healthy order inflows
* Strong order book ensures growth; 23% revenue CAGR likely over FY21- 23E with margins stable at 11.5-11.75%
* Focus on monetisation of non-core subsidiaries to bring-in cash flows and improve capital allocation
* Unwinding of receivables to provide liquidity boost; strengthening of balance sheet likely with gradual decline in debt.
Alternate Stock Idea: Besides NCC, we like Oberoi Realty in the infra/realty space.
* Quality play on MMR real estate with strong balance sheet
* BUY with a target price of | 830/share.
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