IDBI capital recommends buy Nagarjuna,

Nagarjuna Construction Company Ltd. (NJCC) is expected to post highest revenue growth within
our coverage universe at 18% in FY11, led by orders inflows that were well spread over FY10.
Diversified order book, recovery in execution rate and stable margins are expected to result in 19%
earnings CAGR between FY10-12E. While Sompeta Power and Dubai realty projects continue to
face headwinds, the concern seems to be overdone, in our view. Even after writing off the entire
investments made in the two projects, the stock offers 21% upside from current levels.
Investment Highlights
􀂄 Order book at 2.7x TTM revenue; diversified across various segments
As of June 2010, NJCC's standalone order book stood at Rs132 bn or 2.7x trailing TTM revenue. Unlike
HCC/IVRCL, NJCC's order book is diversified across several verticals including buildings, transportation,
water, electrical and irrigation. At Q1FY11-end, the maximum contribution to the order book came from the
buildings segment at 31%. For the standalone entity, we have assumed an order inflow of Rs80/90 bn for
FY11/12, compared to an average order inflow of Rs60 bn in the past three years (FY08-10). Consequently,
order book is set to grow at a CAGR of 17% between FY10-12E.
􀂄 Execution back on track; we expect 20% CAGR in revenue over FY10-12E
NJCC has witnessed a revival in execution since Q3FY10. In Q1FY11, NJCC reported a 9%/16% YoY
growth in standalone/consolidated revenues. We estimate standalone revenue of Rs56.5 bn for FY11.
With execution rate recovering to peak levels in FY10, we expect 20% CAGR in sales over FY10-12E.
􀂄 EBITDA margins of 9.8% over next 2 years; Adj. PAT CAGR at 19%
We assume an EBITDA of 9.8% in FY11/12E, compared to 10.1% in FY10. We thus expect an EBITDA
CAGR of 18% over the next 2 years. Despite a 15% YoY and QoQ drop in net interest expense in
Q1FY11, we expect a 9% YoY increase for FY11. We expect 19% CAGR in earnings over FY10-12E.
􀂄 Subsidiaries continue to face headwinds; 3 road BOTs to start operations in FY11
While Sompeta Power plant has run into environmental problems, Dubai real estate project continues to
pose new challenges due to bad market conditions. NJCC has so far invested Rs2.4 bn into the two
projects, with a further investment of Rs0.5 bn planned into Dubai Harmony. In the road BOT space, the
company expects commercial operation of its 3 remaining projects in Q2/Q3FY11.
􀂄 Concerns priced in; Recommend BUY with a TP of Rs194
Even after writing off the entire investments into Sompeta Power and Dubai real estate projects, the stock
offers 21% upside from current levels. We prefer NJCC over IVRCL due to better growth visibility,
diversified order book, and relatively higher earnings CAGR. We recommend BUY on NJCC with an
SOTP based TP of Rs194 per share based on (1) Rs141 for the standalone construction business on 13x
FY12 EPS (2) Rs24 for the international construction subsidiaries (3) Rs20 for the infra subsidiary, NCC
Infra (4) Rs8 for the real estate subsidiary, NCC Urban.