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Strong growth on favourable base…

About the stock: NCC is one of the leading construction companies in India with a presence across varied verticals of infrastructure such as buildings, roads, water, mining and electrical. Order book was robust at | 39,112 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

Q2FY22 Results: NCC’s Q2FY22 performance was on expected lines - strong growth on benign base YoY and robust order inflows

* Standalone revenue improved 42.7% YoY to | 2,199 crore backed by its strong order book position and pick-up in execution post second wave disruptions

* EBITDA margin at 10.8%, down 286 bps YoY (vs. I-direct estimate of 10.5%). Consequently, operating profit improved 12.8% YoY to | 236.6 crore

* PAT was up 78.5% YoY growth to | 104.3 crore

What should investors do? NCC’s share price has grown merely 2% over the past five years (from ~| 79 in November 2016 to ~| 81 levels in November 2021).

* We maintain our BUY rating on the company

Target Price and Valuation: We value NCC at | 100/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 11-11.5%

* 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 KNR Construction in infra space

* Quality play on segment with strong execution/robust balance sheet

* BUY with a target price of | 340/share

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