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● NCC’s 1Q12 results were in line with our estimates. Interest
expenses were up 121% YoY, led by the rising cost of borrowings
(now at 10.75% and expected to increase further) and increasing
working capital cycle (increased to 182 days, of which working
capital cycle for core construction is of 145 days).
● But order inflow during the quarter at Rs13.6 bn (declined 23% YoY)
was disappointing, resulting in almost flat order book YoY at Rs162
bn. NCC has guided to the order inflow of Rs90 bn, standalone sales
of Rs59 bn, consolidated sales of Rs72 bn, capex of Rs1 bn and
equity investments in infra projects at Rs2.5 bn in FY12.
● We cut our earnings by 10% and 17% for FY12 and FY13,
respectively, on deteriorating order inflows, high working capital
cycle and the rising cost of interest. Consequently, we cut our
target price by 11%, to Rs128. Though, we expect the operating
environment to remain tough for most construction companies
over the next few quarters, we believe the stocks are now trading
at attractive valuations. We thus maintain our OUTPERFORM
rating for NCC.
In-line 1Q12 results
NCC’s 1Q12 results were in line with our estimates. Although sales at
11.4 bn (5% YoY growth) came in 7% below our estimates, an 82 bp
higher-than-expected operating margin led to in-line results.
Disappointment in sales growth was mainly driven by lower-thanexpected
order inflow during the quarter at Rs13.6 bn (declined 23%
YoY). Order book at Rs162 bn was almost flat YoY. Consolidated PBT
at 313 mn was below expectations marginally led by Rs36 mn of
losses at its Western UP toll way and annuity road projects. However,
toll collections have been increasing as expected. As per the company,
Bangalore elevated toll road project that earned Rs1.4 mn/day when
commissioned has now started to earn toll of Rs2.1 mn/day and is
expected to reach the target toll collection of Rs2.5 mn/ day soon.
Western UP toll project is earning toll of Rs1.8mn/day, but is expected
to improve on the full commissioning of the project. Pondicherry
Tindivanam is now at an advanced stage of completion. However, its
100MW Himachal Sorang hydro power project is further delayed by
six months and is expected to commission by March 2012. The
company plans to enter into a power sales contract for this project
versus the plans of merchant sales earlier.
NCC to face fuel issues for 1.32GW Krishnapatnam project
NCC is currently implementing a 1.32GW domestic coal based
Krishnapatnam power project. The total cost of the project is Rs7.1 bn,
expected to be funded in a debt:equity mix of 75:25. NCC owns 55%
of the project. NCC states that the entire debt tie-up of Rs53 bn has
now been completed and expects to announce financial closure soon.
However, as per lenders’ criteria, the project is required to infuse 35%
of the equity upfront (before loan disbursements). NCC has already
infused Rs1.75 bn of equity and needs to invest a further about Rs2
bn in FY12 for its stake in the project. NCC is currently evaluating for
PE funding for this project as well as a partner for its future infra
projects. As per NCC, its power sales contract with Karnataka SEB
(exposing it to risk from project delays), has now been cancelled and it
has received its bank guarantees. NCC plans to participate in fresh
bids to contract power sales from this project and has currently
submitted a bid to supply 0.5GW to Andhra Pradesh for Rs3.71/kwh
levelised tariff.
However, given rising domestic coal deficits, we expect issues with
the project’s fuel security. NCC has acquired a coal block in Indonesia
with reserves of 15 mmt, and capacity of 1.5 mmtpa of coal production.
We expect 6 mmtpa of coal requirement for the project and with
domestic coal unlikely to meet over 60% of coal needs, we believe
NCC still needs to tie up its fuel needs for the project. Besides, coal
block acquired in Indonesia would contribute towards meeting coal
needs for only 10 years, exposing the company to fuel risk thereafter.
NCC is looking to secure long-term imported coal contracts/ acquire
further coal blocks, but that would require substantial capex.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● NCC’s 1Q12 results were in line with our estimates. Interest
expenses were up 121% YoY, led by the rising cost of borrowings
(now at 10.75% and expected to increase further) and increasing
working capital cycle (increased to 182 days, of which working
capital cycle for core construction is of 145 days).
● But order inflow during the quarter at Rs13.6 bn (declined 23% YoY)
was disappointing, resulting in almost flat order book YoY at Rs162
bn. NCC has guided to the order inflow of Rs90 bn, standalone sales
of Rs59 bn, consolidated sales of Rs72 bn, capex of Rs1 bn and
equity investments in infra projects at Rs2.5 bn in FY12.
● We cut our earnings by 10% and 17% for FY12 and FY13,
respectively, on deteriorating order inflows, high working capital
cycle and the rising cost of interest. Consequently, we cut our
target price by 11%, to Rs128. Though, we expect the operating
environment to remain tough for most construction companies
over the next few quarters, we believe the stocks are now trading
at attractive valuations. We thus maintain our OUTPERFORM
rating for NCC.
In-line 1Q12 results
NCC’s 1Q12 results were in line with our estimates. Although sales at
11.4 bn (5% YoY growth) came in 7% below our estimates, an 82 bp
higher-than-expected operating margin led to in-line results.
Disappointment in sales growth was mainly driven by lower-thanexpected
order inflow during the quarter at Rs13.6 bn (declined 23%
YoY). Order book at Rs162 bn was almost flat YoY. Consolidated PBT
at 313 mn was below expectations marginally led by Rs36 mn of
losses at its Western UP toll way and annuity road projects. However,
toll collections have been increasing as expected. As per the company,
Bangalore elevated toll road project that earned Rs1.4 mn/day when
commissioned has now started to earn toll of Rs2.1 mn/day and is
expected to reach the target toll collection of Rs2.5 mn/ day soon.
Western UP toll project is earning toll of Rs1.8mn/day, but is expected
to improve on the full commissioning of the project. Pondicherry
Tindivanam is now at an advanced stage of completion. However, its
100MW Himachal Sorang hydro power project is further delayed by
six months and is expected to commission by March 2012. The
company plans to enter into a power sales contract for this project
versus the plans of merchant sales earlier.
NCC to face fuel issues for 1.32GW Krishnapatnam project
NCC is currently implementing a 1.32GW domestic coal based
Krishnapatnam power project. The total cost of the project is Rs7.1 bn,
expected to be funded in a debt:equity mix of 75:25. NCC owns 55%
of the project. NCC states that the entire debt tie-up of Rs53 bn has
now been completed and expects to announce financial closure soon.
However, as per lenders’ criteria, the project is required to infuse 35%
of the equity upfront (before loan disbursements). NCC has already
infused Rs1.75 bn of equity and needs to invest a further about Rs2
bn in FY12 for its stake in the project. NCC is currently evaluating for
PE funding for this project as well as a partner for its future infra
projects. As per NCC, its power sales contract with Karnataka SEB
(exposing it to risk from project delays), has now been cancelled and it
has received its bank guarantees. NCC plans to participate in fresh
bids to contract power sales from this project and has currently
submitted a bid to supply 0.5GW to Andhra Pradesh for Rs3.71/kwh
levelised tariff.
However, given rising domestic coal deficits, we expect issues with
the project’s fuel security. NCC has acquired a coal block in Indonesia
with reserves of 15 mmt, and capacity of 1.5 mmtpa of coal production.
We expect 6 mmtpa of coal requirement for the project and with
domestic coal unlikely to meet over 60% of coal needs, we believe
NCC still needs to tie up its fuel needs for the project. Besides, coal
block acquired in Indonesia would contribute towards meeting coal
needs for only 10 years, exposing the company to fuel risk thereafter.
NCC is looking to secure long-term imported coal contracts/ acquire
further coal blocks, but that would require substantial capex.
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