Maintain BUY on NCC - Growth comeback - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

NCC reported revenue/EBITDA/APAT at Rs 19.1/2.4/0.7 bn, 9/8/28% behind our estimate, on slower-than-expected execution recovery, lower other income and higher taxes. However, with order inflow of Rs 119bn during the quarter, order book now stands at Rs 392bn (~4.9x FY20 revenue), setting a base for significant ramp-up in revenue from the next quarter. The likely real estate monetisation of Rs 3bn (Mar-21 - Rs 1.5bn and FY22E - Rs 1.5bn) will aid further deleveraging. We maintain BUY on NCC with an increased target price of Rs 115/sh given (1) improved earnings visibility on robust order book (2) abating AP risk and (3) stable balance sheet. Key risks to our estimates: (1) deterioration in NWC days and (2) weak real estate monetisation.

Muted recovery in execution: NCC registered revenue of Rs 19.1bn (-9/+24% YoY/QoQ), miss of 9% as COVID-related challenges impacted execution. EBITDA miss was also at 9% on inline margin. Consequently, APAT came in at Rs 703mn (+17%/+20% YoY/QoQ), 28% below our est., on lower other income and higher taxes. Management expects higher commodity prices to impact margins in the short-term. 4QFY21 revenue is expected at Rs 26bn.

Order book ~4.9x FY20 revenue; Execution pick-up in sight: NCC secured Rs 119bn of orders during the quarter, more that its annual guidance for FY21, on large order wins in water segment. Further, it has secured order of Rs 11bn in Jan-21 and expects additional Rs 10bn during the quarter. Management is confident of carrying the order win momentum forward in FY22 with focus on affordable housing and Jal Jeevan Mission. At the end of the quarter, order backlog stood at Rs 392bn (FYTD21 inflows of Rs 202bn), of which Buildings/Water & Railways accounted for 58/17% and Roads, Electrical, Irrigation and Mining constituted 6-7% each. AP accounts for only 10-12% of the OB now. NCC has guided for Rs 100bn+ revenue for FY22, which we think is achievable given strong order book of ~5x FY20 revenue.

Balance sheet position remains stable: Debt stood at Rs 19.7bn (net D/E at 0.41x) at the end of the quarter and is expected to come down to Rs ~18bn by FY21, basis management commentary. Finance cost reduced to Rs 1.1bn (- 25%-10%). NCC is positive on recovering AP dues soon, which stood at Rs 7bn, including the retention money.

Shares of NCC Limited was last trading in BSE at Rs.85.25 as compared to the previous close of Rs. 84.25. The total number of shares traded during the day was 401761 in over 2710 trades.

The stock hit an intraday high of Rs. 87.9 and intraday low of 84.25. The net turnover during the day was Rs. 34475472.

Source : Equity Bulls

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