Shares of construction and engineering firm NCC declined more than 2 percent in early trade on BSE on December 9 even as market benchmarks the Sensex and the Nifty scaled fresh peaks of 45,926 and 13,483.90.
The stock, held by ace investor Rakesh Jhunjhuwala, has underperformed in the calendar year 2020, so far. As of December 8 close on BSE, the stock had risen around 6 percent in the year against an 11 percent gain for the Sensex.
Jhunjhunwala, his wife, Rekha, and group companies have increased shareholding in NCC to 13.7 percent. "From November 4, 2014, till December 3, 2020, persons acting in my concert have acquired total 1,25,51,168 equity shares of NCC. This amounts to the acquisition of more than 2 percent of total paid-up equity of NCC," Jhunjhunwala said in a statement available on the exchange.
As many as 10 lakh equity shares were acquired on December 3. Now, "our total shareholding is 8,36,04,432 equity shares of NCC, which is 13.7091 percent of total paid-up equity of NCC of 60,98,46,588 equity shares," Jhunjhunwala said.
Jhunjhunwala along with persons acting in his concert (Rekha Jhunjhunwala, Rare Investments, Rajeshkumar Jhunjhunwala, Sushiladevi Gupta, Rare Equity and Rare Share & Stock Private Limited) were holding 7,10,53,264 equity shares (representing 12.78 percent of the total paid-up equity) of NCC, till November 3, 2014.
At the end of the September quarter 2020, Jhunjhunwala and his wife held a 12.14 percent stake in the construction company.
The road ahead
The company's growth trajectory looks positive. It bagged four orders worth Rs 3,905 crore in November.
Research and broking firm Dolat Capital said the improvement in labour availability and execution levels will likely see NCC report healthy revenue and PAT growth from Q3FY21E and the pace will pick up in FY22E.
Vinod Nair, Head of Research at Geojit financial services, has a "buy" rating on NCC on a strong order book of about Rs 30,000 crore in Q2FY21 (4.2 times TTM revenue) and pick-up in execution.
"The company’s order accretion has been pretty strong. On a year-to-date (YTD) basis, NCC has already exceeded the target of Rs 10,000 crore order inflow for FY21 which provides visibility for coming years. We expect order inflow to increase further on account of the government's focus on infrastructure projects and kick start of the economy," Nair said.
Nair expects strong execution capabilities and better margins to support NCC's earnings in H2FY21.
Centrum Broking, too, has a "buy" call on the stock and raised the target price to Rs 82 from Rs 48, a 39 percent upside from the December 8 close on BSE.
"Led by a robust order backlog, we expect a strong execution scale up for NCC in H2FY21 and FY22/FY23. We estimate revenue/EPS of Rs 9,840 crore/Rs 6.5, up 33 percent/48.5 percent year-on-year (YoY) in FY22
and revenue/EPS of Rs 11,800 crore/Rs 9.5 in FY23," Centrum said.
As per Centrum, the stock was trading at 8.5 times/5.8 times FY22/FY23 earnings, with adequate room for an upside. As such, the stock does not factor in any material recovery of AP receivables or from the Sembcorp arbitration award and any incremental inflows will be upside triggers.
The brokerage firm sees an adverse outcome of a dispute with Sembcorp that would result in a cash outflow for NCC is as a key risk.
On technical parameters, analysts are of the view that NCC is already in a strong uptrend with increasing volume.
"The stock has been making higher top-higher bottom on the daily and weekly scales. It rallied from Rs 33 to Rs 56 zones in the last six weeks. It is trading at a 10-month high and the setup looks strong on an immediate basis. It has major support at Rs 50 for an upside move towards Rs 65-70 zomes," said Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Securities.
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