Buy NCC; target of Rs 82: Angel Broking

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Buy NCC; target of Rs 82: Angel Broking

Angel Broking is bullish on Nagarjuna Construction (NCC) and has recommended buy rating on the stock with a target of Rs 82 in its August 16, 2011 research report.

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Angel Broking is bullish on Nagarjuna Construction (NCC) and has recommended buy rating on the stock with a target of Rs 82 in its August 16, 2011 research report.

"NCC posted moderate set of numbers for 1QFY2012. The company is facing headwinds like 1) increasing debt levels; 2) overall slowdown in order booking; and 3) delays in financial closure for its power plant. However, owing to its attractive valuations and diversified order book with exposure to most growth sectors. The company reported top-line growth of 5.1% yoy to Rs 1,141.5cr (Rs 1,086.5cr), which was in-line with our expectation of Rs 1,169.5cr. On the operating front, the company's margin was marginally ahead of our estimate at 10.2% (9.7%). The company continues to reel under pressure on the earnings front on account of subdued top-line growth and burgeoning interest costs. The bottom line came in at Rs 23.3cr (Rs 41.4cr), which was again pretty much in-line with our estimate of Rs 25.3cr."

"The current o/s order book of NCC stands at Rs 16,189cr, flat qoq, with order inflow of Rs 1,349cr for 1QFY2012. Going ahead, we believe the order inflow would be driven by EPC work of its own power plant. However, earnings would continue to reel under pressure due to higher interest cost on the back of higher debt requirements to fund its investments in the power project and on potential winning of road BOT projects. We have downgraded the P/E multiple for the stock (from 10x earlier to 8x currently) in light of increased debt levels, gloomy macro environment and pressure on earnings growth in the near to medium term. However, at the current price, the stock is trading at attractive valuations (3.9x FY2013E earnings adjusted for its investments and subsidiaries) and at 0.5x FY2013E on P/BV basis (standalone). Hence, we maintain our Buy view on the stock with a revised target price of Rs 82," says Angel Broking research report.

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