Buy NCC Ltd For Target Rs.117 - 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 14%/11% owing to ramp in execution across its project sites. With order inflow of Rs55bn in Q3FY23, the order book (OB) stood at Rs418.6bn (3.4x TTM revenue). NJCC has guided for reduction in debt level Rs2-3bn by 4QFY23E. The collection period has reduced to 91days on account of improvement in debtor collection. Given the robust order book, pick-up in execution, stable balance sheet, management has given revised its revenue guidance for FY23E of 30% growth 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 9MFY23 execution and revised management guidance, we have tweaked our FY23E, FY24E and FY25E revenue estimates upwards by 3%/10%/18% while keeping EBITDAM unchanged. We maintain a BUY rating with a revised TP of Rs 117, which includes Rs110 for the standalone construction business (based on 10x FY24E EPS of Rs11) and Rs6.8 from real estate/other businesses.
Result Highlights
* For 3QFY23, NCC’s revenues came in at Rs33.1bn (up 22.5% YoY) (above our & street estimates of Rs29.1bn/ Rs29.8bn) due to better than anticipated execution of its order book.
* EBITDA came in at Rs3.5bn (YSec estimate is Rs3bn) indicating a growth of 19.1% YoY with EBITDA margins softening 30bps YoY to 10.5% (YSec estimate of 10.4%) attributed to other expense.
* On bottom-line front, Adj PAT came in at Rs1.5bn (vs YSec Rs1.2bn) which was supported by higher other income at Rs574mn (YSec Rs291mn)
* During the quarter, NCC bagged orders worth Rs50.3bn in Water, electrical and road divisions
* At the CMP, the stock trades at a P/E of 12.2 and 9x its FY23E & FY24E earnings
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