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Decent performance; order book remains strong…

NCC reported a decent set of numbers in Q4FY21 with revenue growth of 20% YoY to | 2617.7 crore on a standalone basis. The topline growth was mainly driven by strong order book position and pick-up in execution. However, operating margin declined 179 bps YoY to 11.1% owing to higher sub-contracting expenses. Consequently, operating profit improved merely 3.3% YoY to | 289.7 crore. At the net level, a decent operating performance coupled with benign depreciation and interest cost has translated into 11.4% YoY growth to | 115.5 crore in adjusted PAT.

Order book robust; second wave to impact Q1 execution

Order book as on Q4FY21 was at | 37,911 crore (book to FY21 bill ratio of 5.2x), backed by healthy inflows of | 18,943 crore secured in FY21. Going forward, the management expects healthy momentum in order inflows to continue over medium-to-longer term to be aided by government’s strong focus on different infrastructure verticals. On the execution front, NCC is witnessing healthy revenue growth from the past couple of quarters led by elevated order book position, pick-up in construction activities. However, the improved execution pace has been impacted in April-May 2021 owing to unavailability of desired labour on project sites due to second wave of Covid-19 pandemic. While it refrained from giving guidance, the management expects decent revenue growth in FY22 to be driven by a) higher executable order book, b) comparatively better labour counts and minimal interruptions in raw material supply chain, and c) no major stoppage of work from client side. We expect topline to witness 25.8% revenue CAGR in FY21-23E, on a benign base. Also, its operating margin is likely to be at ~11.5% (~100 bps lower than FY20 levels), given the current order book mix and factoring increased raw material costs.

Debt reduced further; working capital days to improve

NCC’s standalone debt has reduced to | 1,789 crore (from | 2,003 crore in Q2) and is likely to remain range bound near current levels with higher profitability, and better cash flow management. Also, its dues from Andhra Pradesh have reduced to | 714 crore (money stuck in legacy capital city project-including retention at | 255 crore). With expected improvement in disbursals from various state governments, its debtor days are likely to get moderated, in-turn, normalising working capital days over medium term.

Valuation & Outlook

Strong order book position and expected pick-up in execution is likely to drive NCC’s overall performance. Further, its stable operating margins and improvement in working capital cycle remain key positives. We retain our BUY rating with a revised TP of | 100/share (vs. | 110/share, earlier).

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