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NCC emerges lowest bidder for `1,500cr road project
Nagarjuna Construction Company (NCC) has emerged the lowest bidder for road BOT
annuity project worth `1,500cr from NHAI (as per media reports). The project entails fourlaning
the 163km stretch of the highway between Ranchi and Jamshedpur, which we
believe attracts good traffic from Ranchi and Jamshedpur. NCC had refrained from
winning BOT projects at competitive rates to swell the order book and has not won any
BOT project since 2006 – it maintained a threshold IRR of 16–18% for winning BOT road
projects. Therefore, we believe this is a positive development for the company and would
lend boost to the order book (~`17,500cr).
We maintain our positive stance on the company as our top pick, owing to its diversified
order book along with exposure in most of the growth sectors, with an SOTP target price of
`196. The company’s core construction business is valued at a P/E of 14x FY2012E EPS of
`9.7 (`135/share), NCC International is valued at a P/E of 10x FY2012E EPS of `2.3
(`23/share), whereas its real estate (`7/share) and road and power ventures (combined
`31/share) are valued at 1.5x equity invested. At the CMP of `123, the stock is trading at
attractive valuations – at 8.8x FY2012E P/E and 0.8x FY2012E P/B (adjusting for its
investment in real estate and BOT).
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