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Execution hampered by delayed payments

NCC’s (NJCC IN) muted performance in Q3 dragged down overall 9M performance, with revenue growth at just 7% due to slowdown in execution for government projects (on delayed payments resulting in a spike in debt, receivables and working capital). Post the slowdown, NJCC has turned cautious in its commentary versus optimistic outlook up to Q2FY25, reducing its FY25 revenue growth guidance from 15% to 5% and margin guidance to 9.25% from 9.5-10%. Near-term outlook is uncertain and streamlining of payments will be the key to any pick-up in execution. So, we cut earnings estimate for FY25E/26E/27E by 27%/33%/35%. Since the stock has corrected ~33% in the past three months, we maintain Accumulate with TP pared to INR 227, based on 15x FY27E P/E (from 16x) to factor in slowdown risk in capex.

Revenue outlook – From optimism to caution: Q3 revenue was flat YoY at INR 46.7bn on execution slowdown in key government projects, including in Jal Jeevan Mission (JJM)) on delayed payments and elections in some states. Due to a drag in Q3, NJCC cut its FY25 revenue guidance to 5% from 15%. EBITDA margin stood at 8.8% versus 9.4% estimated due to lower absorption of fixed cost and higher employees expense (led by a rise in head-counts to meet planned higher execution). So, margin guidance was also cut to 9.25% from 9.5-10%. PAT disappointed at INR 1.9bn versus INR 2.4bn estimated.

Awaiting payments for government projects: Due to elections at the center, NJCC witnessed a slowdown in receipt of payment from various government projects, which led to a sequential rise in receivables to INR 31bn from INR 28bn, in working capital to INR 54bn from INR 50bn and in debt to INR 24bn from INR 17bn. NJCC expects payments to take another quarter to improve post revised budgetary allocation to various government schemes. Also, receivables from Andhra Pradesh (AP) worth INR 4bn are pending (INR 1.6bn from capital city projects; INR 2.2bn from current projects) post receipt of INR 2.3bn in Q3.

Inflows and pipeline healthy, aided by diversified presence: 9M inflow stood at INR 136bn, led by water, railways, buildings, irrigation and transport sectors and incremental L1 position on INR 90-100bn as of Dec ’24 (leading to visibility of 2.7x on current orderbook of INR 518bn). Pipeline of INR 2.4tn exists for various segments and expect resumption in awarding of capital city projects in Andhra Pradesh. So, NJCC has retained its FY25 inflow guidance at INR 200-220bn.

Maintain Accumulate with TP pared to INR 227: With slowdown in execution in Q3, spill-over effects are likely to flow to Q4, hampering full-year revenue to flat, with 9.1% margin in FY25E (9M revenue growth at 7%; margin 9.0%). We aggressively cut earnings estimates for FY25/26/27E by 27%/33%/35% respectively, factoring in slowdown in execution and margin. Monitor collection efficiency and pickup in execution on new inflows. Maintain Accumulate with TP cut to INR 227 from INR 370, on P/E of 15x FY27E (from 16x) due to elevated capex risk. Expect revenue/ EBITDA/ adjusted PAT CAGRs of 6%/9%/11% in FY24-27E.

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