NCC (UNDER REVIEW): Recovery in project execution still elusive - AMBIT

NCC reported a revenue decline of 6% YoY in 1QFY14, marginally below our expectations, due to slow project execution. EBITDA margins at 7.9% were in line with our estimates. However, PAT was a disappointment (with a 39% YoY decline vs our estimate of flat growth) due to lower revenues but more importantly due to higher interest costs from increasing working capital debt. Whilst management guides for a better year, we believe most if this stems from hope with no signs of improvement visible yet. Given these results, we will have to revise our FY14/FY15 EPS estimates lower by 30-50% and valuations (earlier published Rs40) lower by 10-15% but still implying 80-90% upside. We put our stance, estimates and valuation UNDER REVIEW from SELL. Most of our valuation (Rs33) comes from NCC's road/power/real estate investments (Rs12bn), which do not need any more equity. Concerns around core business/cash flow generation hold back our optimism on the stock even though valuations are at historical low levels (without adjusting for embedded value, 6.0x reduced FY14 EPS).

Source : Equity Bulls

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