Buy NCC; target Rs 42: Angel Broking

Angel Broking's research report on NCC

"NCC posted poor set of numbers for 4QFY2013 which were below our and street expectations. The current outstanding order book of NCC stands at Rs 18,553cr (3.2x trailing revenues) in 4QFY2013, indicating a decline of 8 percent yoy. During the year, the company secured orders worth Rs 4,813cr (excluding slowing moving order worth Rs 853cr in the power segment)."

"Deleveraging balance sheet through monetization of assets: On the top line front, NCC reported revenues of Rs 1,741cr in 4QFY2013, indicating a decline of 0.8 percent yoy, which was lower than our estimate of Rs 1,879cr respectively. This is mainly due to (a) slower-than-expected execution in some projects particularly in power segment (delay at clients’ side) and (b) depleting order book. On the EBITDAM front, owing to profit from sale of real estate asset, the company’s EBITDA margins grew by 320bp yoy to 9.0 percent (our estimate was 8.5 percent) in 4QFY2013. Interest cost came in at Rs 113cr a growth of 14.9 percent yoy. On the bottom line level, NCC reported a yoy growth of 151.9 percent to Rs 27cr, lower than our and consensus estimate owing to lower-than-expected revenue performance and higher tax rate (45 percent)."

"Outlook and valuation: During the quarter, NCC has reduced its debt by Rs 297cr to Rs 2,225cr as on 4QFY2013 and is in process of reducing its debt to below Rs 2,000cr through stake sale in two of its road BOT projects (Western UP tollways and Bangalore Elavated expressway), continued monetization of its land bank and completion of stake sale in the Himachal Sorang project. The stock currently trades at a PE of 3.0x and 2.2x (excluding subsidiaries’ valuation) our FY2014 and FY2015 EPS estimates. Further, on account of the stake sale initiated by the company in some of its projects and decline in its stock price, we upgrade our recommendation on the stock to Buy with a target price of Rs 42," says Angel Broking research report.

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