Buy NBCC; target of Rs 281: ICICI Direct

Net sales grew 14.3% YoY to Rs 1245.2 crore driven by growth in PMC division (grew 20.7% YoY to Rs 1171.1 crore). However, sales was below our estimate of Rs 1363.0 crore mainly on account of lower than expected revenues in PMC division (Rs 1171.1 crore in Q1FY17 vs. our expectation of Rs 1259.5 crore) and real estate division (Rs 17.3 crore in Q1FY17 vs. our expectation of Rs 51.8 crore) The EBITDA margin contracted 40 bps YoY to 3.5% and was below our estimate of 4.5% mainly due to higher un-allocable expenses (Rs 21.0 crore in Q1FY17 vs. our expectation of Rs 12.6 crore)   PAT grew 14.4% YoY to Rs 45.4 crore. However, it was below our expectation of Rs 59.4 crore mainly on account of higher effective tax rate (34.5% in Q1FY17 vs. 30.3% in Q1FY16) and EBITDA margin miss.

We are positive on NBCC’s business model given the huge set of opportunities, going ahead and expect its revenues/earnings to grow at of 34.4%/27.5% CAGR over FY16-FY18E.  We also like NBCC given its negative working capital, cash rich balance sheet (Rs 1133.5 crore as on FY16) and strong return ratios (RoE of 26.3% & RoCE of 40.7% in FY18E), going ahead. Consequently, we maintain our BUY recommendation with revised SOTP based target price of Rs 281 (implying 33.5x FY18E EPS).  For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.