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Order book to propel execution...

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 Q1FY25 revenue grew by 23% YoY, backed by robust order book and superior execution of the building division and electrical T&D business.

* EBITDA margin declined by 59bps YoY to 9.3% in Q1FY25, due to higher input and sub-contracting expenses.

* NCC has guided 15% of revenue growth in FY25 with a EBITDA margin of 9.5-10%.

* Order inflow in Q1FY25 was muted due to election, however, the company is confidant to achieve orders of Rs22,000cr in FY25.

* We expect new opportunities in orders from AP & Bihar due to the budget proposals. The company expects restocking of older orders worth Rs5,000cr which got cancelled in 2019.

* Robust order book with strong execution capability and healthy balance sheet we revise our rating to BUY with a TP of Rs 374, based on a P/E of 18x on FY26E EPS.

Robust order book provides visibility...

In Q1FY25, NCC’s order book stood at Rs 52,626cr, which is 2.7x TTM revenue. However, new orders during the quarter were tepid due to the general election. The management has guided Rs 20,000cr to Rs 22,000cr of new orders in FY25 due to higher spending proposals in the Union budget. NCC expects new orders from AP & Bihar due to special fund allocation in the budget. The company hinted at restocking of older orders worth Rs 5,000cr which got cancelled in 2019 due to a change in state government. The smart meter project in Bihar is on track; the company has supplied 80,000 meters till now, and 55,000 meters have been installed. On the geographical front, Maharashtra constitutes 34% of the order book, followed by UP (20%), Jharkhand (11%), Karnataka (9%), and AP (5%).

Execution to pick up...

NCC’s Q1FY25 revenue grew by 22.8% YoY to Rs 4,713cr, led by healthy project executions. The building division (55% YoY), electrical T&D (253% YoY), and mining segment (8% YoY). The Jal Jeevan Mission (JJM) projects also contributed a major portion of revenue. As on Q1FY25, NCC has completed about 60% of the project, and the balance of Rs 6,000cr is expected to be completed by FY25. The company expects top-line growth of 15% YoY for FY25, with an EBITDA margin of 9.5-10%. During the quarter, EBITDA margin declined by 59bps YoY to 9.3%, due to higher subcontracting expenses.

Valuations

The tailwinds in execution due to a robust order book and healthy balance sheet will keep the outlook intact. Though the management remains conservative on FY25 topline growth, we expect execution to pick up pace in H2FY25. Therefore, we revise our rating to BUY and value the stock at a P/E of 18x on FY26E EPS with a target price of Rs 374.

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