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Strong execution with margin improvement

Our view

NCC ltd (NJCC) reported healthy execution with revenues coming in above our and street estimates by 24.1%/35% owing to ramp in execution in building and water division. Margins grew 21bps QoQ at 10.6% but were below estimates impacted by higher RM prices. With order inflow (OI) of Rs258.9bn in FY23, the order book (OB) stood at Rs502.4bn (3.8x TTM revenue). The collection period has reduced to 87days on account of improvement in debtor collection in Telangana and UP states. Standalone debt decreased by Rs2bn and is expected to come down further by Rs1- 2bn by FY24E, on collection from clients and part proceeds from Vizag deal. Given the robust order book, pick-up in execution, stable balance sheet, management has given revenue guidance for FY24E of 20% 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, defence and airports as the awarding momentum pickup. We maintain a BUY rating with a revised SoTP-based TP of Rs 159, which includes Rs153 for the standalone construction business (based on 10x FY24E EPS of Rs15.3) and Rs6.6 from real estate/other businesses.

Result Highlights

* For 4QFY23, NCC’s revenues came in at Rs40.2bn up 28.1% YoY (above our & street estimates of Rs32.4bn/ Rs29.8bn) due to better than anticipated execution of its order book.

* EBITDA came in at Rs4.2bn (our estimate is Rs3.7bn) indicating a growth of 58.8% YoY with EBITDA margins expanding 203.6bps YoY to 10.6% (below our estimate of 11.4%) on account of higher raw material cost.

* On bottom-line front, Adj PAT came in at Rs1.8bn (vs our Rs1.6bn) which was supported by higher other income at Rs310mn (YSec Rs163mn)

* During the quarter, NCC bagged orders worth Rs132.8bn in Water, electrical and road divisions.

* At the CMP, the stock trades at a P/E of 9.4 and 7.6x its FY24E & FY25E earnings

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