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Execution picked up...

NCC Limited (NCC) is one of the largest well diversified construction companies in India with a foothold in every segment of construction sector

• NCC reported a robust revenue growth of 56% YoY in Q1FY23 backed by its strong order book and pick up in execution.

• However, EBITDA margin declined by 105bps YoY to 9.5% due to higher commodity prices and higher sub-contracting expenses (62% YoY).

• Order book remained healthy at Rs 40,616cr (3.7x TTM revenue), supported by a strong inflow of Rs 4,456r in Q1FY23.

• The management expects traction in order inflow with emphasis on affordable housing, Jal Jeevan Mission, roads, and railway, while it refrained from guidance.

• With a strong order book, the company has guided for revenue growth of 15% to 20% for FY23, with a 10% EBITDA margin.

• Given strong order book, healthy balance sheet and pick up in execution, we maintain Buy rating and value at a P/E of 11x on FY23E EPS with a TP of Rs.89.

Robust order book...

NCC’s order book remains robust at Rs40,616cr (3.7x TTM revenue), supported by a strong order inflow of Rs4,456r in Q1FY23. The robust order book provides revenue visibility for three to four years. The main order during the quarter was for the wastewater treatment plant at Malad, Mumbai, which has Rs 3,833cr. The management expects order inflow to grow further as there is lots of bidding activity in the water projects, Jal Jeevan Mission, and opportunities in buildings as well as roads. The total receivables from Andhra Pradesh projects is picking up, the total receipt in Q1FY23 was Rs 120cr, and Rs44cr received in July. In FY23, the company expects Rs300cr from all AP projects.

Revenue to grow 15-20% in FY23...

Revenue increased by 56.3% YoY to Rs2,959cr in Q1FY23, owing to a strong order book and an improvement in execution. We expect the pace of execution to continue in coming quarters as most of the orders are in the execution stage. In FY23, management expects top-line growth of 15% to 20%. The construction, water and environment, and railway industries will be major contributors to growth. During the quarter, EBITDA margin fell 105 basis points YoY to 9.5%, while margins improved by 99 bps sequentially. The management indicated that margins were impacted by elevated commodity prices and higher subcontracting expenses. With the recent contraction in key raw material prices, we expect the EBITDA margin to be in the range of 10% to 10.3% in FY23. Adj. PAT increased by 132% YoY to Rs120cr in Q1FY23

Valuations

We increase FY23 revenue estimate by 3% and declined our EBITDA margin by 100bps to factor in the higher commodity prices. Given the strong order book, healthy balance sheet and pick up in execution, we maintain BUY rating and value NCC at a P/E of 11x on FY23E earnings with a target of Rs 89.

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