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Research
NCC - De-leveraging balance sheet; Buy
Posted On : 2013-05-26 20:14:01( TIMEZONE : IST )
Revenue flat, PAT higher. NCC's 4QFY13 revenue fell 1% yoy (up 47% qoq), lower than our estimates, due to slow execution in some power projects (delay at clients' side). Revenue grew 9% yoy in FY13, lower than its guidance of 15% yoy. EBITDA margin, adjusting for one-time expenditure (Rs. 400m, including provision for bad debt) and profit on sale of land (Rs. 520m) stood at 8.3% vs 7.2% in 3QFY13 and 5.8% in 4QFY12. We expect 8% EBITDA margin in FY14/15 on the back of higher contribution from the NCC power project to revenue (mainly through low-margin BTG component). The company repaid debt of ~Rs. 3bn in 4QFY13, benefit of which is likely to flow in during FY14. NCC aims to further lower debt by ~Rs. 3bn by Mar'14 to below Rs. 20bn. At Rs. 368m, adjusted PAT was higher than our estimate.
Order book on the decline. The company's order inflow was Rs. 48.1bn in FY13 (after deducting a power order of Rs. 8.5bn), lower than the work executed, resulting in an order book drop from Rs. 202bn in 4QFY12 toRs. 185.5bn in 4QFY13 (3.2x TTM revenue). Of this, buildings, roads and power comprise 57%.
BOT project update. NCC is looking to exit its three BOT projects (Himachal Sorang, Bangalore Elevated, Western UP) and some of its real estate projects. So far, it has been successful in selling real estate of Rs. 1bn and has signed term sheet for sale of Western UP toll project. NCC Power has been short-listed by Andhra Pradesh to supply 500 MW. NCC is participating in bidding for PPA in UP and aims to tie up for a total of 990 MW by Mar'14.
Our take. During the quarter, NCC reduced its debt by Rs. 3bn by selling real estate projects and lowering debtors, thereby reducing its leverage to 0.9x. We retain our Buy call, with an SOTP price target of Rs. 61, based on 8x PE of the FY14e construction business (Rs. 28) and 1x/0.5x/0.8x P/BV for its road BOT (Rs. 16)/ power (Rs. 10) and real-estate businesses (Rs. 7). Risks. Rise in interest rates, slowdown in order inflows.
