Result Update: Nagarjuna Construction Company Ltd - BUY - TP Rs.135 - Kotak

NCC's net profit for the quarter was ahead of our estimates led by better than expected execution and margins. Robust order book provides healthy visibility of future earnings and company maintains its revenue target of Rs 110 bn in FY19. Balance sheet is also much cleaner and company doesn't expect any large provisioning on pending cases where arbitration is going on with the client.

Key highlights

- Revenues for Q1FY19 stood well ahead of our estimates. Operating margins witnessed an improvement and company expects to maintain margins around these levels. Net profit performance stood ahead of our estimates led by higher margins and improved execution despite extra-ordinary provisioning pertaining to an overseas project arbitration.

- Order inflow for the company stood healthy at Rs 41.9 bn during Q2FY19 taking the order book to Rs 329.5 bn. Healthy order inflows provide good visibility on revenue growth.

Valuation and outlook

At Rs 87, stock is trading at 11.9x and 10.6x P/E and 6.5x and 5.5x EV/EBITDA on FY19 and FY20 estimates respectively. We maintain our estimates but reduce our valuation multiples to 15x versus 17x earlier to factor in delays in some projects and arbitration risks and arrive at a revised price target of Rs 135 based on sum of the parts valuation on FY20 estimates. (Rs 151 earlier). We maintain BUY recommendation on NCC Ltd. Key risk to our estimates and recommendation would come from adverse ruling on power project cases where arbitration is going on or delays in receivables.

Shares of NCC Limited was last trading in BSE at Rs.87.8 as compared to the previous close of Rs. 89.75. The total number of shares traded during the day was 704757 in over 2299 trades.

The stock hit an intraday high of Rs. 89.9 and intraday low of 86.7. The net turnover during the day was Rs. 62098999.

Source : Equity Bulls

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