Buy NCC Ltd For Target Rs.100 - Yes Securities
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Strong growth momentum to continue
Our view
NCC ltd (NJCC) reported healthy execution with revenues coming in above our and street estimates by 22%/10% owing to ramp in execution across its project sites. However, margins were marginally impacted on account of high raw material prices. With order inflow (OI) of Rs26.7bn in Q2FY23, the order book (OB) stood at Rs400.2bn (3.4x TTM revenue). The collection period has reduced to 95days on account of improvement in debtor collection. Gross debt has increased by ~Rs8bn sequentially led by pickup in execution of projects, however by end of FY23, management expects to reduce the debt level by Rs4?5bn. Given the robust order book, pick?up in execution, stable balance sheet, management has given revised its revenue guidance for FY23E of 30% growth (earlier 15?20%) with EBITDA margins at 10%.
We believe with vast experience and proven execution capabilities, the company can leverage rising opportunities in buildings, water infra, transportation, metros, defense and airports as the awarding momentum pickup. With robust 1HFY23 execution and revised management guidance, we have tweaked our FY23E revenue estimates upwards by 12% while keeping FY24E estimates largely unchanged. We have introduced our FY25E estimates with revenue / PAT growth of 8% / 7% YoY owing to healthy order book. We maintain a BUY rating with a SoTP?based TP of Rs 100, which includes Rs93 for the standalone construction business (based on 10x FY24E EPS of Rs9.2) and Rs6.8 from real estate/other businesses.
Result Highlights
* For 2QFY23, NCC’s revenues came in at Rs30bn (up 36.6% YoY) (above our & street estimates of Rs24.6bn/ Rs27.3bn) due to better than anticipated execution of its order book.
* EBITDA came in at Rs2.9bn (above YSec Rs2.5bn) indicating a growth of 22% YoY with EBITDA margins softening 115bps YoY to 9.6% (below YSec estimate of 10.1%) attributed to higher material costs.
* On bottom?line front, Adj PAT came in at Rs1.2bn (vs YSec Rs1.1bn) which was supported by higher other income at Rs328mn (YSec Rs255mn)
* During the quarter, NCC bagged orders worth Rs23.3bn in Water, electrical and building divisions.
* At the CMP, the stock trades at a P/E of 7.9 and 7.8x its FY23E & FY24E earnings.
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