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Growing good; retaining our Buy

NCC’s inspiring execution pace persists, margins are returning, and order additions continue to benefit from its diversified services. Potential exists to de-lever the balance sheet; such efforts are underway (asset monetisation and other wise). With this, the stage seems set for it to keep churning out a healthy performance. Government focus on infrastructure creation continues, and sturdy prospects keep the outlook bright. On the healthy prospects and sound fundamentals, we retain our Buy rating with a higher TP of Rs116 (on raised EBITDA and better CF)

Sturdy additions, ample assurance. Sturdy H1 additions of ~Rs71bn have been followed by ~Rs55bn in Q3, and ~Rs18bn post-Q3. It also has L1 status for orders of ~Rs30bn. As a result, the end-Q3 gross OB rose ~Rs18bn q/q to ~Rs419bn (~3.1x TTM revenue); it turns sturdier were one to include postQ3 and L1 orders. Ytd additions of over Rs170bn (incl. L1s) are already ahead of the earlier guided-to ~Rs160bn, and management, on the bright prospects, sees ~Rs200bn in FY23 as attainable.

Debt shrinks, more likely. On the shorter receivables cycle (4 days q/q) and proceeds from sales of land/flats, gross/net debt contracted ~Rs0.4bn/ ~Rs1.1bn q/q to ~Rs19.5bn/~Rs12.8bn. On the envisaged better payment cycle in Q4, and expected Vizag monetisation proceeds (payment schedule delayed once more), a further Rs2bn-3bn reduction is envisaged by Mar’23.

Guidance. Management retained its FY23 revenue growth guidance of ~30% (implying ~16% growth in Q4). With the recent softening of key inputs and the rising share of newly-added orders, management sees potential to Q3’s ~10.5% EBITDA margin. Capex guidance was raised to ~Rs2.7-2.8bn (~Rs2.4bn in 9M), from ~Rs2.25bn earlier.

Valuation. On the sturdier-than-expected Q3 and raised inflow estimates, FY23e earnings are ~7% higher. FY24’s, ~3%, and FY25’s ~1%. At the CMP, the stock (excl. investments) is available at an EV/EBITDA of 4.2x FY25e. Risk: Any failure to exercise financial prudence.

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