Buy NCC; target of Rs 174: HDFC Securities

HDFC Securities' research report on NCC

NCC’s Q1FY24 revenue/EBITDA/APAT came in at INR 38.4/3.8/1.6bn, beating our estimates by 7.2/5.1/12.2%. EBITDA margin was 9.9% (+41/-64bps YoY/QoQ, vs. our estimate of 10.1%, owing to higher input and raw material prices, partly offset by lower employee expenses and better absorption of overheads). NCC recorded FYTD24/Q1FY24 order booking of INR 130bn+/81.5bn (vs. guidance of INR 260bn+, 50% met), taking the OB as of Jun’23 to an all-time high of INR 541.1bn (~4.1x FY23 revenue). With the conclusion of the Sembcorp arbitration case, the company is expecting the pay-out in H2FY24. It reiterated its FY24 revenue guidance to grow at 20% YoY with an EBITDA margin similar to the FY22 level. Also, it continues to expect the PAT margin to grow by 50bps YoY. The company guided for (1) FY24- end debt to be below INR 8bn and (2) incurring a capex of INR 2.7bn, of which INR 0.2bn incurred in Q1FY24.

Outlook

Given the all-time high order book, execution ramp-up, and robust balance sheet, we recalibrate FY24/25E estimates higher and increase our PE multiple to 11x from 10x earlier. We maintain BUY on NCC, with an increased TP of INR 174 (11x Jun-25E EPS rolled over).