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Strong performance
NCC’s Q2FY23 PAT at Rs1.2bn beat estimate of Rs1bn led by marginally higher execution, higher other income and lower tax rate. Execution remained strong (+37% YoY to Rs30bn) aided by robust backlog of Rs375bn. NCC YTD FY23 inflows stand at ~Rs100bn (including L1 position of ~Rs18bn). Gross debt at Rs19.9bn in Sept-22 was lower than Rs21bn in Sept-21 but higher than Rs17.1bn in June-22. In H1FY23 revenue grew by 46%YoY implying the strong execution growth is being managed within past debt levels of Rs18?20bn. EBITDA grew 22% YoY to Rs2.9bn (estimate: Rs2.8bn). EBITDA margin was down 120bps YoY to 9.6% (+10bp QoQ) due to higher input costs. NCC has guided for robust 30% YoY revenue growth to ~Rs130bn in FY23 with 10% EBITDA margins (implies H2 margins of +10%). Steady reduction in AP exposure and expected proceeds from Vizag land sale will provide growth capital. Valuations are attractive at 7.4x/6.4x FY24/25E EPS. Maintain BUY with PT of Rs116.

PAT beats estimate led by strong execution, higher other income and lower tax rate
Revenue grew by 37% YoY to Rs30bn on relatively low base and beat estimate of Rs29bn driven by robust execution amid comfortable liquidity. NCC’s order intake YTD FY23 is ~Rs100bn (includes L1 position of ~Rs18bn) with order backlog being Rs375bn in Sept-22 (3.2x TTM revenues). Other income grew 35% YoY to Rs328m (estimate: Rs200m) aided by dividend from SPVs. Interest costs grew 5% YoY to Rs1.22bn (estimate: Rs1.18bn) due to rise in debt levels and higher BG charges.

Buoyant growth outlook; margins to remain at ~10% levels 
NCC has guided for robust revenue growth of 30% YoY in FY23 (implies 20% YoY growth in H2FY23). While margins remained under pressure in H1FY23 at 9.6% due to higher input costs, NCC expects margin recovery going forward and has guided for 10% margins in FY23E. Given the strong order prospects across verticals, NCC is confident of receiving new order inflows of Rs160bn in FY23 (Rs99bn in FY22, Rs100bn in YTDFY23)

Steady recoveries from AP; Vizag sale proceeds to provide growth capital 
NCC recovered past dues of Rs2.3bn from AP in YTD FY23. Overall net outstanding exposure to AP stands at Rs5.6bn in Sept-22, up from Rs5bn in June-22. This increase is on account of incremental execution in certain AP projects where payments are timely. Outstanding AP order backlog stands at Rs31.5bn as on Sept?22. Balance tranches of Vizag deal equity proceeds (totalling to Rs1.5bn) are delayed by 3 months each and will now all come in by June-23 vis?à?vis Mar-23 earlier. The recovery of loans and accrued interest of Rs3.2bn combined is scheduled by Mar-24.

Growth revival and de?leveraging to aid re-rating; Maintain Buy 
Backed by a strong backlog of Rs375bn (3.2x TTTM revenues), we expect revenue of Rs146bn/Rs165bn and EPS of Rs9.8/Rs11.2 in FY24/25. Steady unwinding of AP exposure and Vizag land sale proceeds should provide growth capital. NCC has been able to maintain its average debt levels at Rs18?20bn even as execution continues to improve which indicates incrementally NWC intensity is improving. Favorable outcome of Sembcorp arbitration remains a key stock trigger. We introduce FY25 estimates and value the stock at 11x average FY24-25 EPS to arrive at TP of Rs116. Maintain BUY.

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