Buy NCC; target of Rs 111: Prabhudas Lilladher

Prabhudas Lilladher's research report on NCC

NCC reported weak quarterly numbers as revenues came below our and street estimates due to tepid execution levels. However, rigid cost control measures and better operational efficiencies led to positive surprise for EBITDA margins. Liquidity position is resilient on the back of timely disbursements from Central and State Govt. authorities and easing of finance cost burden (down 25% YoY) with lower interest rates and reduced performance BG requirements. Due to lower than anticipated 9M execution levels, management reduced FY21 revenue guidance to Rs71-72bn (earlier Rs77bn) but maintained strong optimism going ahead led by strong order book, robust execution momentum & better liquidity position. We believe that with vast experience and proven execution capabilities, the company can leverage rising opportunities in buildings, water infra, transportation, metros, defense and airports as the economy witnesses a strong Infra push. With tepid 9M execution and revised management guidance, we have tweaked our FY21 revenue estimates downwards by 15.6% while keeping FY22/23 estimates largely unchanged.

Outlook

At CMP, the stock trades at a P/E of 25.4x/11.4x on FY21E/FY22E EPS and an EV of 7.8x/6.1x FY21E/FY22E EBITDA. We roll over to FY23 estimates and raise our target multiple on construction business from 10x to 11x. We maintain BUY rating on the stock with a revised SoTP based TP of Rs111 (Earlier TP Rs83).

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