Nagarjuna - In line; constrained by working capital: Kotak Sec

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Nagarjuna Construction Co. (NJCC)
Construction
In line; constrained by working capital-led deterioration in balance sheet . NJCC
results were broadly in line with our estimates with revenues of Rs12 bn and net PAT of
Rs460 mn. The management maintained its aggressive revenues guidance (Rs58 bnstandalone,
Rs73 bn-consolidated) for FY2011E implying a stiff growth target in
2HFY11E. The balance sheet saw some deterioration led by higher working capital and
loans & advances to subsidiaries leading to higher debt levels (by Rs5 bn). Retain BUY.





Relatively moderate results - broadly in line with estimates
Nagarjuna reported standalone revenues of Rs12 bn recording a moderate yoy growth of 12.6%,
broadly in line with our estimate. EBITDA margin remained relatively flat on a yoy basis at 10.3%,
about 50 bps ahead of our estimates. The higher tax expense (led by additional tax provision of
Rs40 mn) in 2QFY11 led to a net PAT growth of 4.7% to Rs460 mn - broadly in line with our
estimate of Rs469 mn. For the half year ending September 30, 2010, NJCC reported net revenues
of Rs22.8 bn, up 10.6% yoy. EBITDA margin declined marginally by 30 bps to 10% leading to a
net PAT of Rs874 mn in 1HFY11, up 6.4% yoy from Rs821 mn in 1HFY10.

Maintains aggressive revenue guidance – implies strong growth in 2HFY11E
The management has maintained its revenue guidance of Rs58 bn at the standalone level and
Rs73 bn at the consolidated level for FY2011E implying very strong revenue growth requirement
of 28% and 34% at the standalone and consolidated level in 2HFY11E. We expect the company
to report revenues of Rs55.5 bn in FY2011E, up about 16% yoy. Our full-year estimates imply a
revenue growth requirement of about 26% in 2HFY11E. Nagarjuna would have to record a PAT of
Rs1.4 bn in 2HFY11E in order to meet our full-year estimate versus 1HFY11 PAT of Rs874 mn.

Balance sheet deteriorates on higher working capital requirements and advances to subsidiaries
Nagarjuna has reported a strong increase in debt levels by about Rs5.3 bn to Rs20.6 bn at end-
Sept-2010 versus FY2010-end levels of Rs15.3 bn. The increased debt levels were primarily to fund
the higher working capital requirements and investments into the BOT assets of the company. Net
working capital of the company (excluding cash) has increased by Rs6.3 bn from end-FY2010
levels primarily led by higher loans and advances (increased by Rs5.5 bn since end-FY2010).

Marginally revise estimates and target price to Rs205/share; reiterate BUY
We have marginally revised our estimates to Rs8.8 and Rs11.5 for FY2011E and FY2012E. We
reiterate BUY with a target price of Rs205/share on (1) relatively attractive valuations—trading at
steep discount to historical levels, (2) strong growth visibility, (3) ramp-up of business segments,
(4) strong progress in BOT projects and (5) long-term outlook for infrastructural investments.