FY2010 annual report. Key highlights include (1) marginal deterioration in working
capital (104 days vs 95 days last year); sharp increase in loans and advances to
subsidiaries (Rs4.3 bn), (2) operating cash (adj. for Gautami stake sale) still negative
(-Rs239 mn) though better than last year (-Rs1.5 bn), (3) invests additional Rs2 bn in
subs-imply 1.5X P/B in infrastructure and 0.5X P/B in real estate venture in our total
SOTP, (4) provides annual reports for all subs and (5) confident FY2011E revenue
guidance. Retain BUY.
Marginal deterioration in working capital; operating cash still negative but better than last year
Nagarjuna reported a slight deterioration in net working capital (adjusted for cash, mobilization
advance and loans and advances to subsidiaries) to 104 days of sales at end-FY2010 versus the
FY2009-end level of 95 days. The company reported a sharp rise in loans and advances to
subsidiaries to Rs4.3 bn—primarily towards NCC Urban Infrastructure, NCC Power Projects and
Nagarjuna Contracting Co. LLC. Nagarjuna reported a negative operating cash flow of Rs257 mn
(adjusted for the Rs496 mn of one-time income from sale of stake in Gautami power project). This
is, however, significantly better than the high negative operating cash of Rs1.5 bn in FY2009.
Sharp rise in subsidiary investments; P/B of1.5X in infra and 0.5X in real estate venture in our TP
Nagarjuna reported a Rs2 bn increase in investments to Rs9.4 bn at end-2010 primarily in NCC
Infrastructure Holdings Ltd - holding company for all BOT and infrastructure projects of Nagarjuna.
Total investments in equity and loans and advances towards (1) infrastructure development
subsidiaries of Nagarjuna stood at Rs5 bn (Rs20/share) versus our target-SOTP valuation of
Rs28/share (implies 1.5X P/B) and (2) real estate development subsidiaries of Nagarjuna stood at
about Rs7.6 bn (Rs30/share) versus our target value of Rs15.8/share (implies 0.5X P/B).
Provides annual reports of subsidiaries; management maintains strong guidance despite weak 1Q
Nagarjuna has, for the first time, provided detailed financials for each of its 36 subsidiaries. This
would help us gain a better perspective as the subsidiaries start to contribute meaningfully.
Despite a weak 1QFY11, the management has maintained its FY2011E revenue guidance (Rs58 bn
standalone and Rs73 bn consolidated), implying a growth target of 25% in the rest of 9M11E.
Marginally revise estimates and target price to Rs205/share; reiterate BUY
We have marginally revised our earnings estimates and SOTP-based target price to Rs205/share.
We reiterate our BUY rating on (1) relatively attractive valuations—trading at steep discount to
historical levels, (2) (2) strong growth visibility, (3) ramp-up of business segments, (4) strong
progress in BOT projects and (5) long-term outlook for infrastructural investments.
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