Visit http://indiaer.blogspot.com/ for complete details �� ��
Nagarjuna Construction
Company
Execution Pickup Should Get
Stronger in Second Half
Quick Comment – revenue & profit growth inching
up at 13% and 14%, respectively: NCC reported
standalone revenues at Rs12 bn (up 13% YoY)
marginally ahead of our estimate of Rs11.7 bn. Better
than expected margins at 10.3% (up 10 bps YoY vs our
estimate of an 80 bps decline) resulted in a 13% YoY
increase in EBITDA for the quarter. NCC has provided
for an extra Rs40 mn of taxes in the quarter (following
the income tax raid on 6-7th October). Hence we will
focus on the PBT for the quarter, which was up 15% YoY,
11% ahead of our estimates. Adjusted for the excess
tax provision, NCC reported profits of Rs500 mn (up
14% YoY)
Management confident of order inflows and
execution – strong second half likely: At the
beginning of the year NCC guided for Rs100 bn of order
inflows and Rs58 bn of standalone revenue for F2011.
Management is confident of meeting guidance on both
counts. To date NCC has achieved order inflows of
Rs45 bn (Rs35 bn as of F2Q11) and Rs23 bn of
standalone revenues as of H1F11. NCC has seen a
pickup in execution across its projects after the
traditionally weak monsoon quarter and expects a
strong H2F11. This translates into an asking rate of
51% growth in order inflows and 30% growth in
revenues for H2F11 on management guidance –
implying strong quarters coming up.
Core construction business trading at attractive
valuation: NCC currently trades at an F2012e P/E of
11.2x. Adjusted for its BOT and real estate subsidiaries,
the core construction business trades at an attractive
value of 7.5x with estimated 33% profit CAGR in
F2010-12. We remain OW on the stock and maintain our
numbers.
Following are takeaways from the conference call:
1. Income-tax raid: On October 6-7, 2010, the Income Tax
Department conducted a raid across NCC’s 46 offices in
India. The tax authorities have not yet indicated any
irregularities or evasion of taxes and thus not crystallized
any potential tax liability due from NCC. However, NCC’s
management expects tax liability (if any) of a maximum of
Rs100-150 mn as a result of the raid. As a prudent
measure, NCC has provided for Rs40 mn in F2Q11 as
provision to meet any liability that may arise from this raid.
2. Thermal power plant in Andhra Pradesh: NCC Infra’s
plans to set up a 1,320 MW thermal power plant in
Sompet, Andhra Pradesh have been shelved due to
cancellation of the environmental clearance for the
project. NCC has appealed to higher courts, though, and
is looking for alternate locations for the project. NCC has
invested Rs830 mn in this project with Rs 450mn paid to
acquire land that is currently in NCC’s possession. Even
though the project is delayed indefinitely, this does not
impair our valuation. We have valued NCC’s investment
in BOT projects of Rs4.6 bn as of March 2010 at a P/B of
1.5x to arrive at Rs27 per share for NCC.
3. Liability to supply 400 MW to Karnataka: NCC had
contracted with the Government of Karnataka to supply
400 MW of power @ Rs3.89 per unit from the 1320 MW
Sompet power plant by F2015. NCC has submitted a Rs
1.2 bn performance guarantee to the Govt of Karnataka
to honour its commitment. We believe NCC has four
years to set up its power plant at an alternate location. In
the worst-case scenario; NCC can buy power for one
year from the open market and honour its commitment.
4. BOT Projects: NCC expects to commission two of its
road projects in F3Q11 and another road project by
F4Q11. Thus, by March 2011 all of the company’s five
road BOT projects will be operational and contributing to
revenues. NCC also expects to commission its 100 MW
Himachal Sorang hydro power plant by December 2011.
of which it plans to sell 88 MW in the merchant market.
To date; NCC has invested Rs5 bn in its BOT projects
and expects its entire equity commitment of Rs6.2 bn in
BOT projects to be fulfilled by F2011. NCC has been
conservatively bidding on the NHAI road projects and is
currently qualified for 50 packages.
5. Management maintains guidance: Management has
maintained its guidance for consolidated revenues
(including international subsidiaries and BOT business)
of Rs73 bn (up 24% YoY), Rs58 bn on a standalone level,
and EBITDA margins of 10%.
No comments:
Post a Comment