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Mixed bag - Reduces debt; margin guidance lowered

About the stock: NCC is one of the leading construction companies in India with a presence across varied verticals of infrastructure space such as buildings, roads, water, mining and electrical. Standalone order book is robust at | 36,303 crore.

* Well-diversified order backlog, robust execution capabilities, and strong focus on debt reduction and working capital to characterise NCC over next few years.

Q4FY22 Results: NCC’s performance was a mixed bag

* Standalone revenue improved 19.7% YoY to | 3,134.3 crore backed by its strong order book position and pick-up in execution

* EBITDA declined 7.9% YoY to | 266.9 crore. Margin moderated to 8.5%, down 255 bps YoY owing to input price rise

* Reported PAT was up 110.5% YoY at | 243.2 crore. However, NCC booked an exceptional gain of | 134.5 crore pertaining to profit on sale of its stake in subsidiary company, additional area allotted to NCC Ltd and provisions

What should investors do? NCC’s share price has de-grown by 35% over the past five years (from ~| 95 in May 2017 to ~| 62 levels in May 2022).

* Sharp debt reduction has been key positive. However, margins may be see volatility in FY23. We, thus, assign HOLD vs BUY rating, earlier.

Target Price and Valuation: We value NCC at | 70/share (at (9x FY24 P/E)

Key triggers for future price performance:

* Firmly placed to capitalise on huge infrastructure pipeline; continued momentum in awarding activities to translate into healthy order inflows

* Expect 10.3% revenue CAGR over FY22-24E with margins at 10%

* Focus on monetisation of non-core subsidiaries to bring-in cash flows

* Unwinding of receivables to provide liquidity boost; strengthening of balance sheet likely with gradual decline in debt

Alternate Stock Idea: Besides NCC, we like HG Infra Engineering in the infra space.

* Quality play on segment with strong execution/robust balance sheet

* BUY with a target price of | 885/share

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