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NCC reported good set of results for 1QFY25 as despite being an election quarter, revenues increased by 23% YoY, 7% ahead of our estimates. Execution remained robust across multiple segments like buildings, JJM and electrical division. Order inflow was weak during the quarter at just Rs4bn but guidance for FY25 remains same at Rs200-220bn. Management expects EBITDA margins of 9.5%-10% in FY25, slightly below historical levels, as the company would prioritize growth by securing large orders; we believe elevated competition will further exert pressure on margins. Post recent election verdict in Andhra, the management expects revival of multiple stalled projects and expects infra development to pick up substantially which will aid order accretion. We have tweaked our estimates to factor in better execution and slightly lower margins asn our FY26 EPS estimate is higher by 6%. Our revised TP stands at Rs280 based on 13x (unchanged) FY26E EPS. Given the recent run-up in the stock, we downgrade the stock to Sell from Add.

1QFY25 result highlights

NCC reported good set of results for 1QFY25 as execution remained healthy with 23% YoY growth in revenue despite this being an election quarter. EBITDA at Rs4.4bn is up 15.5% YoY and 1.6% ahead of our estimate. EBITDA margins at 9.3% are down 60bps on YoY basis and 47bps below our expectation. PAT at Rs2bn is up 24% YoY and 4.5% ahead of our expectations. - he company received new orders worth Rs4bn (including change in scope) in this quarter and total OB stands at Rs526bn on consolidated basis. The board has approved Scheme of Arrangement for the Merger of NCC Infrastructure Holdings Limited (NCCIHL) (Wholly Owned Subsidiary) with NCC Limited.

Order inflow guidance of Rs200-220bn for FY25; EBITDA margin guidance of 9.5%-10%

NCC reported closing OB of Rs526bn in June 2024. Despite weak order inflow in 1QFY25, the management reiterated its guidance of Rs200-220bn of order inflow, 15% revenue growth and 9.5-10% margins for FY25. Major orders include 1) Smart meter projects (advanced metering infrastructure) in Maharashtra and Bihar, 2) Tunnel project in Mumbai (JV with J Kumar) and 3) JJM project in UP. Management highlighted that margins might slightly taper down to 9.5%-10% in FY25 as they would pursue growth via larger orders.

Valuation and outlook

We downgrade the stock to Sell from Add as we believe that recent uptick in stock price (up 44% in 6 months and 100% in 1 Year) factors in the growth potential adequately. We expect the company to maintain its execution momentum in near future, however, margins are expected to remain range bound. We are building in Revenue/PAT CAGR of 17%/23% over FY24-FY26E and expect margins to hover at 9.7% in FY26. We continue to value the stock at 13x FY26 EPS to arrive at our revised TP of Rs280 (Rs264 earlier).

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