Buy Nagarjuna Construction - Motilal Oswal

Nagarjuna Construction (NJCC IN; Mkt Cap USD0.4b, CMP Rs104, Buy)

Nagarjuna Construction Company (NCC) reported 3QFY11 revenue of Rs13b (up 12.5% YoY), but lower than our estimates of Rs15b (up 28% YoY).

EBITDA was Rs1.28b (up 8.1% YoY). Adjusted net profit was Rs444m (down 7.2% YoY). Consolidated EBITDA margins of 11% were up 46bp YoY.

NCC reported order inflows of Rs27b in 3Q, about Rs12.8b are from the buildings segment. The order backlog is Rs172b with BTB ratio of 2.8x TTM revenues.

In 3QFY11, net working capital was 166 days, up from 126 days at the end of FY10. This is a largely due to delays in client payments and increased advances.

Debt increased from Rs15b in March 2010 to Rs23b currently (and Rs21b in September 2010).

We cut our FY11 and FY12 earnings estimates by 15% and 30% respectively. Our FY12 estimates assume 15% revenue growth, 24% order intake growth and slight improvement in EBITDA margins, at 10.2%. We believe there is downside risk to our estimates as a revenue slowdown can lead to poor fixed-cost absorption and increased interest cost can put pressure on NPM. We have revised our SOTP price target downwards to Rs139 (earlier Rs202). Maintain Buy.

Source : Equity Bulls

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