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Strong execution boosts revenue growth…

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 | 37.838 crore.

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

Q1FY23 Results: NCC’s strong performance was led by superior execution

* Standalone revenue improved 56.3% YoY to | 2,958.6 crore backed by its strong order book position and pick-up in execution

* Operating margin was at 9.5% (down 105 bps YoY) with impact of higher raw material prices. Effectively, EBITDA at | 281.2 crore, was up 40.8% YoY

* PAT, at | 120 crore, was up 132.1% YoY aided by healthy operating performance and benign depreciation & interest expenses

What should investors do? NCC’s share price has de-grown by 20% over the past five years (from ~| 83 in August 2017 to ~| 66 levels in August 2022).

* While strong execution traction is a positive surprise, we await stability in margins and consistency in leverage management. Thus, we maintain HOLD rating on the stock

Target Price and Valuation: We value NCC at | 75/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 ~13% 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 PNC in the infra space

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

* BUY with a target price of | 350/share

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