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UBS Investment Research
Nagarjuna Construction Company
Misses estimates led by lower execution
„ Q3 revenues up 13% YoY, with EBITDA margins of 9.6%
Nagarjuna reported Q3 revenues (standalone) of Rs13.4bn (+13% y/y, UBS-e
Rs14.1bn), EBITDA margins of 9.6% (-40bps y/y, UBS-e 10%) and PAT of
Rs404m (UBS-e Rs515m). Adjusted for additional tax provision of Rs40m, PAT
would be Rs444m. 9mFY11 revenues are at Rs36bn (+11% y/y) with EBITDA
margins of 9.8% (-30bps y/y) and PAT of Rs1.3bn (-2% y/y; this is after additional
tax provision of Rs80m related to IT enquiries; another Rs70m likely in Q4).
„ Revenue shortfall of Rs6.5bn in 9m, due to weather and client-side issues
There was a revenue shortfall of Rs6.5bn in 9mFY11 due to 1) extended/severe
monsoons in Q3/Q2, 2) delays in payments by clients and 3) delays in land
acquisition by clients. It hence sees a 8-10% slippage in its earlier guidancerevenues of Rs58bn at standalone level, Rs73bn at consolidated level. It expects to
attain standalone EBITDA margins of ~10% (UBS-e 10%). Order book is at
Rs62bn and it expects to have order-flows of ~Rs100bn in FY11 (Rs62bn in 9m).
„ Update on BOT projects
The BOT road projects faced some delays due to land-acquisition delays by NHAI.
All three under-construction projects are now expected to be commissioned in next
three months. Nagarjuna has paid Rs1.5bn for acquiring 55% stake in Nelcast
power plant. Most of the approvals are in place and it expects to achieve financial
closure by Mar-11 (total debt requirement of ~Rs52bn, Rs32bn already tied-up).
„ Valuation: maintain Buy
Nagarjuna is our preferred pick in the mid-cap construction space.
Key highlights of conference call
Q Revenue: There has been a revenue shortfall of Rs6.5bn in 9mFY11 due to
1) extended monsoons in Q3, 2) severe monsoons in Q2, 3) delays in
payment from clients and 4) delays in land acquisition by clients.
Q Orders: Order inflows during 9mFY11 were Rs62bn, with Q3 order-flows at
Rs27bn. Nagarjuna expects to have Rs30bn of orders from the power
segment from IPPs- these orders have been received but not booked in Q3
order-inflow as those projects have not achieved financial closure yet.
Additionally there would be an EPC order of Rs40-45bn from Nelcast.
Q Roads Segment: Currently they are pre-qualified in twenty projects and
expect to win one-two projects.
Q Escalation clause: 80% of the orders have escalation clauses.
Q Balance Sheet update: Cash: Rs1bn Debt: Rs23.2bn (Rs20.6bn last quarter)
Investments: Rs10.6bn, Inventory: Rs9bn, Debtors: Rs15.3bn, Loans and
advances: 25.5bn, and Current Liabilities: Rs20.7bn. The collection period
from debtors has increased to 117days; the company is planning to bring it
down to 100days. Consolidated debt is ~Rs43.5bn.
Q Subsidiary performance 9mFY11:
International subsidiaries had good execution with revenues of Rs8.7bn. The
company maintained its view that they will achieve a turnover of Rs1.2bn in
FY11 (the execution shortfall has been in the domestic business).
— Oman LLC: Revenues ~Rs4bn, EBITDA margin 10.2%, PAT margin
1.5%
— Muscat: Revenues Rs3.9bn, EBITDA margin 8.6%, PAT margin 6.7%
— NCC Urban: Revenues Rs1.1bn, EBITDA margin 36%, PAT margin
1.6%
Q Nelcast power plant:
— Premium paid: Nagarjuna has paid Rs1.5bn for 55% stake (Gayatri
Projects has acquired 45% stake; total payment has been Rs2.7bn). The
premium paid is about 50%.
— Equity: The company’s share of equity requirement is Rs9.5bn, out of
which Rs1.5bn has already been invested. It requires to invest Rs2.5bn
before financial closure which it will fund from internal sources.
— Debt: Total requirement is Rs52.5bn. Rs32bn already sanctioned by REC
and PFC. Balance is in process of being tied-up. Financial closure is
expected by Mar-11.
— EPC order: The company expects EPC order of Rs40-45bn from this
project. It might award the BTG and BOP equipment orders on Chinese
players.
Q BOT projects: COD of Western UP Tollway and OB Infra is expected by
Mar-11, Pondicherry-Tindivanam by Apr-11 (a delay of about a month due
to land acquisition delays by NHAI) and Himachal Sorang by Dec-11
(Equity invested around Rs1bn till now, total project cost is of Rs6bn,
~Rs4.5bn has been invested so far).
Q Tax Authority enquiries: Total impact could be Rs150m for FY11. It has
provided an amount of Rs80m in 9mFY11, including Rs40m in Q3.
Q Exposure to AP: Mostly in Irrigation segment, outstanding dues from the
government are ~Rs1.3bn. Bills upto July have been paid.
Q Dubai project: It expects to complete six floors by Apr-11.
Q Nagarjuna Construction Company
Nagarjuna Construction was founded in 1978 by its chairman, AVS Raju as a
partnership firm undertaking civil construction work. It became a public limited
company in 1990 and listed in 1992. The real estate division was launched in
1996. The construction business (project business units) has five divisions: 1)
industrial structures, buildings and housing; 2) transport; 3) water and
environment; 4) electrical; and 5) irrigation and hydropower. The company has a
real estate development subsidiary and an infrastructure development company.
Q Statement of Risk
The company is executing more than a 100 projects at multiple locations, which
exposes it to high execution risks. The company has to deal with government
agencies and is subject to many government regulations, which exposes it to
regulatory risks. The company is investing in real estate and long-term
infrastructure projects, which exposes it to various other risks such as interest
rates, execution delays, and commodity risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Nagarjuna Construction Company
Misses estimates led by lower execution
„ Q3 revenues up 13% YoY, with EBITDA margins of 9.6%
Nagarjuna reported Q3 revenues (standalone) of Rs13.4bn (+13% y/y, UBS-e
Rs14.1bn), EBITDA margins of 9.6% (-40bps y/y, UBS-e 10%) and PAT of
Rs404m (UBS-e Rs515m). Adjusted for additional tax provision of Rs40m, PAT
would be Rs444m. 9mFY11 revenues are at Rs36bn (+11% y/y) with EBITDA
margins of 9.8% (-30bps y/y) and PAT of Rs1.3bn (-2% y/y; this is after additional
tax provision of Rs80m related to IT enquiries; another Rs70m likely in Q4).
„ Revenue shortfall of Rs6.5bn in 9m, due to weather and client-side issues
There was a revenue shortfall of Rs6.5bn in 9mFY11 due to 1) extended/severe
monsoons in Q3/Q2, 2) delays in payments by clients and 3) delays in land
acquisition by clients. It hence sees a 8-10% slippage in its earlier guidancerevenues of Rs58bn at standalone level, Rs73bn at consolidated level. It expects to
attain standalone EBITDA margins of ~10% (UBS-e 10%). Order book is at
Rs62bn and it expects to have order-flows of ~Rs100bn in FY11 (Rs62bn in 9m).
„ Update on BOT projects
The BOT road projects faced some delays due to land-acquisition delays by NHAI.
All three under-construction projects are now expected to be commissioned in next
three months. Nagarjuna has paid Rs1.5bn for acquiring 55% stake in Nelcast
power plant. Most of the approvals are in place and it expects to achieve financial
closure by Mar-11 (total debt requirement of ~Rs52bn, Rs32bn already tied-up).
„ Valuation: maintain Buy
Nagarjuna is our preferred pick in the mid-cap construction space.
Key highlights of conference call
Q Revenue: There has been a revenue shortfall of Rs6.5bn in 9mFY11 due to
1) extended monsoons in Q3, 2) severe monsoons in Q2, 3) delays in
payment from clients and 4) delays in land acquisition by clients.
Q Orders: Order inflows during 9mFY11 were Rs62bn, with Q3 order-flows at
Rs27bn. Nagarjuna expects to have Rs30bn of orders from the power
segment from IPPs- these orders have been received but not booked in Q3
order-inflow as those projects have not achieved financial closure yet.
Additionally there would be an EPC order of Rs40-45bn from Nelcast.
Q Roads Segment: Currently they are pre-qualified in twenty projects and
expect to win one-two projects.
Q Escalation clause: 80% of the orders have escalation clauses.
Q Balance Sheet update: Cash: Rs1bn Debt: Rs23.2bn (Rs20.6bn last quarter)
Investments: Rs10.6bn, Inventory: Rs9bn, Debtors: Rs15.3bn, Loans and
advances: 25.5bn, and Current Liabilities: Rs20.7bn. The collection period
from debtors has increased to 117days; the company is planning to bring it
down to 100days. Consolidated debt is ~Rs43.5bn.
Q Subsidiary performance 9mFY11:
International subsidiaries had good execution with revenues of Rs8.7bn. The
company maintained its view that they will achieve a turnover of Rs1.2bn in
FY11 (the execution shortfall has been in the domestic business).
— Oman LLC: Revenues ~Rs4bn, EBITDA margin 10.2%, PAT margin
1.5%
— Muscat: Revenues Rs3.9bn, EBITDA margin 8.6%, PAT margin 6.7%
— NCC Urban: Revenues Rs1.1bn, EBITDA margin 36%, PAT margin
1.6%
Q Nelcast power plant:
— Premium paid: Nagarjuna has paid Rs1.5bn for 55% stake (Gayatri
Projects has acquired 45% stake; total payment has been Rs2.7bn). The
premium paid is about 50%.
— Equity: The company’s share of equity requirement is Rs9.5bn, out of
which Rs1.5bn has already been invested. It requires to invest Rs2.5bn
before financial closure which it will fund from internal sources.
— Debt: Total requirement is Rs52.5bn. Rs32bn already sanctioned by REC
and PFC. Balance is in process of being tied-up. Financial closure is
expected by Mar-11.
— EPC order: The company expects EPC order of Rs40-45bn from this
project. It might award the BTG and BOP equipment orders on Chinese
players.
Q BOT projects: COD of Western UP Tollway and OB Infra is expected by
Mar-11, Pondicherry-Tindivanam by Apr-11 (a delay of about a month due
to land acquisition delays by NHAI) and Himachal Sorang by Dec-11
(Equity invested around Rs1bn till now, total project cost is of Rs6bn,
~Rs4.5bn has been invested so far).
Q Tax Authority enquiries: Total impact could be Rs150m for FY11. It has
provided an amount of Rs80m in 9mFY11, including Rs40m in Q3.
Q Exposure to AP: Mostly in Irrigation segment, outstanding dues from the
government are ~Rs1.3bn. Bills upto July have been paid.
Q Dubai project: It expects to complete six floors by Apr-11.
Q Nagarjuna Construction Company
Nagarjuna Construction was founded in 1978 by its chairman, AVS Raju as a
partnership firm undertaking civil construction work. It became a public limited
company in 1990 and listed in 1992. The real estate division was launched in
1996. The construction business (project business units) has five divisions: 1)
industrial structures, buildings and housing; 2) transport; 3) water and
environment; 4) electrical; and 5) irrigation and hydropower. The company has a
real estate development subsidiary and an infrastructure development company.
Q Statement of Risk
The company is executing more than a 100 projects at multiple locations, which
exposes it to high execution risks. The company has to deal with government
agencies and is subject to many government regulations, which exposes it to
regulatory risks. The company is investing in real estate and long-term
infrastructure projects, which exposes it to various other risks such as interest
rates, execution delays, and commodity risks.
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