NCC - Initiating Coverage - A Solid Play in Infrastructure Pickup - Reliance Securities

NCC - one of the largest construction companies in India with a presence across varied verticals of infrastructure space - is well-poised to witness accelerated growth on the back of visible opportunities owing to pick-up in infrastructure spending and improved balance sheet. A balanced presence across infrastructure verticals essentially provides NCC the requisite flexibility to its business-mix. Further, a consistent improvement in working capital cycle without compromising order execution and margins over the last three-four years coupled with prudent divestment of non-core assets aided NCC to de-leverage its balance sheet (D/E at 0.5x), which would enable the Company to bid for more projects. Its current order book stands at Rs204bn (2.5x TTM revenue) and order inflow is estimated to ~Rs390.0bn over FY17E-FY19E. We initiate coverage on NCC with BUY recommendation with an SOTP-based Target Price of Rs100, which implies an upside of 22% from the current levels.

Firmly Placed to Capitalize on Huge Opportunities in Infrastructure Space

Infrastructure development is considered to be the key to provide the much-desired fillip to India''s projected economic growth. Notably, government has earmarked an investment of US$375bn in infrastructure in the next three years. We believe that with a balanced presence across infrastructure verticals (10 segments), geographical diversification and prequalification to undertake projects in most verticals, NCC is best-placed to cash in on imminent opportunities.

Prudent Approach to Streamline Balance Sheet Started Paying off

NCC has been consistently improving its working capital cycle without compromising order execution and margins over the last couple of years. This along with a prudent divestment of its non-core assets aided NCC to reduce its gross debt from Rs24.7bn in FY14 to Rs18.8bn in FY16 (D/E at 0.5x). In a scenario where several construction companies are undergoing CDR, a light balance sheet offers us confidence on its ability to bid for larger quality orders, going forward.

Outlook & Valuation

We believe that debt reduction programme and improving operating margins with quality projects have started paying off. Further, the visible ease in working capital cycle and likely pick-up in infrastructure activities will aid NCC in reporting an earning CAGR of ~14% over FY16-FY19E. We initiate coverage on the stock with BUY recommendation on NCC with an SOTP-based Target Price of Rs100.

Shares of NCC Limited was last trading in BSE at Rs.83.8 as compared to the previous close of Rs. 83.8. The total number of shares traded during the day was 228566 in over 1380 trades.

The stock hit an intraday high of Rs. 84.45 and intraday low of 83.05. The net turnover during the day was Rs. 19131172.

Source : Equity Bulls

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