Buy NCC Ltd For Target Rs.184 - Geojit Financial Services Ltd
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All-time high order book...
NCC Ltd. (NCC) is one of the largest, well diversified construction companies in India, with a foothold in every segment of the construction sector.
* NCC reported a top-line growth of 30% YoY, backed by its strong execution in Jal Jeevan Mission projects (30% of revenue).
* EBITDA margin improved by 41bps YoY to 9.9% in Q1 FY24, principally due to higher execution and moderation in input prices. NCC expects margins to improve to 10% in FY24, led by a better gross margin.
* In Q1FY24, order inflows increased by 83% YoY, taking the total order book to an all time high of Rs54,110cr (3.8x TTM revenue), providing strong revenue visibility in the coming years.
* With a strong order book, the company has guided for revenue growth of 20%/15% for FY24/FY25, respectively.
* With a pick-up in execution and benign input prices, we increase the FY24/FY25 earnings estimates by 5%/10%, respectively.
* We reiterate BUY rating on NCC and value the stock at a P/E of 11.5x on FY25E EPS with a TP of Rs.184.
Diversified order book...
In Q1FY24, NCC’s order book remains at an elevated level of Rs 54,110cr, (which is 3.8x trailing twelve-month revenue, supported by an order inflow of Rs 8,154cr (83% YoY). The management foresees strong traction in order inflows in FY24 and has guided an order inflow target of Rs 26,000cr. The order book is well diversified: buildings 50%, electrical 15%, water & railway 15%, transportation 11%, mining 9%, and irrigation 1%. The total orders from the state of Karnataka stood at Rs 4,000cr (7% of the order book), which includes Bangalore metro projects of Rs 2,150cr. The management stated that the company has received mobilisation advances for most of the projects in the state of Karnataka, and execution will commence this year itself.
Strong execution continued...
NCC’s Q1FY24 revenue grew by 30% YoY to Rs 3,838cr (in line with the estimate), led by healthy execution in Jal Jeevan Mission projects. The execution of the UP Jal Jeevan water project of Rs 16,500cr has picked up good progress and contributed 30% of revenue in Q1FY24. The company expects top-line growth of 20% YoY for FY24 and 15% YoY for FY25. In Q1FY24, EBITDA margin improved by 41bps YoY to 9.9%, supported by strong execution and benign raw material prices. With the recent contraction in key raw material prices, the management expects the EBITDA margin to be in the range of 10% in FY24. Adj. PAT increased by 35% YoY to Rs162cr in Q1FY24. The Sembcorp arbitration process is over, and the company is expecting a payout in H2FY24
Valuations
With strong order execution, an all-time high order book, and an improvement in margins, we increase our FY24 and FY25 EPS estimates by 5% and 10%, respectively. Therefore, we reiterate BUY rating on NCC and value the stock at a P/E of 11x on FY25E earnings with a target price of Rs 184.
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