Downgraded NCC Ltd to 'reduce' - TP lowered to Rs.34

- NCC Ltd has been downgraded to 'reduce' from the earlier 'hold' rating and the target price has been lowered to Rs.34 from Rs.59 earlier.

- The company fared poor in FY12 and the performance is unlikely to improve in FY13. Hence, the rating revision.

- FY12 was marked by subdued revenue growth of 3.5% yoy and the EBITDA margin contracted by 200 bps yoy.

- Interest cost increased 50% yoy. As a result of all these, net profit declined 78% yoy.

- For FY13, it is assumed that revenue would grow 11% with a 40 bps increase in EBITDA margin. However, operations would deteriorate further.

- Successful execution of the 1320 MW power plant is critical for NCC, for which the company is in the process of signing long term supply contracts. But the plant has no firm fuel linkages or contracts to supply power so far. In this scenario, it would be challenging for NCC to raise private equity funding for this project.

- Earnings estimates for the company has been lowered 42% for FY13 and 36% for FY14 and the target price has been lowered to Rs.34 from the earlier TP of Rs.59.

- The target price is arrived at without assigning any value for the company's power and real estate assets.

Source : Equity Bulls

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