NCC Ltd - Muted performance - HDFC Securities

Mr. Parikshit D Kandpal, CFA, HDFC Securities and Mr. Chintan Parikh, Institutional Research Analyst, HDFC Securities

NCC reported subdued revenue/EBITDA/APAT at INR 18.9/1.9/0.5bn, 10/18/34% below our estimates, impacted by the COVID second wave. The Q1FY22 order inflow, at INR 31.7bn, was robust with the order backlog at INR 391bn (5.4x FY21 revenue). NCC is betting on growth alongside balance sheet deleveraging. Cash flows from likely real estate monetisation (INR 3.7bn) and unwinding of international operations (INR 2.9bn likely repatriation) may aid deleveraging. We maintain BUY on NCC with a target price of INR 114/sh (roll- forward to Jun-23E), given (1) growth visibility on a robust order book; (2) abating AP risk; and (3) balance sheet strengthening.

Q1FY22 financial highlights: NCC registered revenue of INR 18.9bn (+61/- 28% YoY/QoQ), a miss of 10% as COVID-related challenges impacted execution. EBITDA came in at INR 1.9bn (+73/-31% YoY/QoQ, 17.8% miss). EBITDA margin expanded 74bps YoY to 10.6% due to better supply chain and labour availability than last year. APAT came in at INR 517mn (+3x/-55% YoY/QoQ), a miss of 34%. NCC is targeting for an EBITDA margin of 11.5- 12% and PAT margin of 3.5-4% in FY22.

Order book ~5.4x FY21 revenue; Jal Jeevan mission and affordable housing to drive growth: NCC secured INR 31.7bn of orders during Q1FY22 with that order backlog standing at INR 391bn (5.4x FY21 revenue), of which buildings/water & env. accounted for 57/20% and roads, electrical, irrigation and mining constituted 5-6% each. The management shied away from giving any official guidance for the year as uncertainty of a third COVID wave persists; however, given a strong OB momentum, it believes 20-25% growth is achievable. NCC expects the Central government sponsored scheme of affordable housing and Jal Jeevan mission to be the order book drivers.

Net debt to normalise; cash flow expected from international operation and arbitration award: Gross debt increased to INR 19.3bn at Jun-21 end vs INR 17.9bn at Mar-21. The company is targeting a debt level of INR 15-16bn. Capex for FY22 is budgeted at INR 2.5bn. Receivables from AP project stands at INR 5.7bn with INR 3.4bn of unbilled revenue. A pending amount from Oman and Mauritius projects stands at INR 2.9bn with more than 50% expected to be realised by Dec-22. The Sembcorp final hearing is expected in Dec-21 with arbitration award expected before April 2022.

Shares of NCC Limited was last trading in BSE at Rs. 88.2 as compared to the previous close of Rs. 89.3. The total number of shares traded during the day was 275002 in over 2165 trades.

The stock hit an intraday high of Rs. 89.9 and intraday low of 87.6. The net turnover during the day was Rs. 24382181.

Source : Equity Bulls

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