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Dismal 1H but execution set to improve

NCC reported weak set of results for 2QFY25 as heavy monsoon, delay in getting approvals in several projects and slow execution in JJM projects, smart meter projects and change in alignment in GMLR project resulted in revenue coming in 7% below our estimate. Margins at 9% were below our estimate of 9.5% resulting in 16%/40% YoY drop in EBITDA/PAT. Nevertheless, the management has maintained its guidance for FY25 of 15% revenue growth and 9.5-10% margins. Order inflow remained healthy with inflow of Rs47.6bn in 2Q and the company is L1 for orders worth Rs92bn. Given the strong order pipeline of Rs2.1tn, we believe the company can surpass its order inflow guidance of Rs200-220bn. We have tweaked our estimates for FY25 and FY26 and introduce FY27 numbers. We have moved our valuation forward to Sep26 to arrive at our revised TP of Rs310 (Rs280 earlier). We upgrade the stock to Reduce from Sell.

2QFY25 result highlights

NCC reported weak set of results for 2QFY25 as both execution and margins came in below our estimate. Revenue at Rs44.5bn is down 1% YoY and 7% below our estimate. EBITDA at Rs4bn is down 16% YoY and 12% below our estimate. EBITDA margins came in at 9% against our estimate of 9.5%. Recurring PAT at Rs1.6bn is down 40% YoY and 22% below our estimate. Post-election slowdown in spending and excessive monsoon have resulted in weak execution. NCC secured orders worth Rs47.6bn in 2QFY25 and closing orderbook stands at Rs523.7bn

Guidance maintained despite weak 1HFY25

NCC reported closing OB of Rs524bn in Sep 2024. Order inflow for 2QFY25 was much better compared to 1Q and given the L1 position of the company (orders worth Rs92bn), we expect the company to meet or even surpass its inflow target. The management reiterated its guidance of Rs200-220bn of order inflow, 15% revenue growth and 9.5- 10% margins for FY25.

Maharashtra projects in slow lane, AP projects likely to pick up

41% of order inflow for the company during 2QFY25 came from Maharashtra. Smart meter project in Maharashtra is progressing slowly whereas progression in Bihar smart meter project has picked up. Also, GMLR project is also delayed due to change in alignment. Given the election in the state, we expect issuance of LoA for MSRDC projects to delay as well. However, the management is hopeful of pickup in projects from AP government from 3QFY25.

Valuation and outlook

We expect the company to resume its execution momentum from 2HFY25, however, margins are expected to remain range bound. We are building in Revenue/PAT CAGR of 17%/22% over FY24-FY27E and expect margins to hover at 9.3% in FY26. We have tweaked our estimates and move our valuation forward to Sep26 based on 13x EPS to arrive at our revised TP of Rs310 (Rs280 earlier)

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