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Higher-than-expected interest expenses led to a 10% PAT disappointment in 1QFY12. With
interest rates expected to remain elevated in the near term, affecting the core business and
subsidiaries alike, we cut our TP 19% but maintain a Hold.
High interest cost dented the healthy EBITDA
In 1Q, the standalone company reported a 44% yoy decline in PAT, driven by high interest
expenses (up 118% yoy and 11% qoq). EBITDA came in at Rs1.17bn, up 10% yoy on the back of
a 5% yoy increase in sales. Lower raw material cost led to an EBITDA surprise of 9%, with
margins at 10.2% (up 47bp yoy). However, higher-than-expected interest expense resulted in a
10% PAT disappointment for us. Net debt rose 5% qoq to Rs24.6bn. Consolidated PAT declined
43% yoy, again on higher interest costs, despite a 15% increase in consolidated sales.
We cut our EPS forecasts 16% for FY12 and 19% for FY13
Our EPS forecast cuts are driven mainly by increased interest expense forecasts as we build in 1)
a higher interest rate and 2) higher-than-expected debt levels. Apart from this, we also raise our
depreciation forecast and cut our FY13 sales growth forecast, due to a slightly lower rate of
execution. Our FY12 sales growth forecast of 11% is still lower than management guidance of
15%. However, we built in a marginally higher margin for FY12.
Macro headwinds may continue to trouble in the near term
NCC’s core construction business may continue to underperform on higher interest costs.
Management indicated that interest costs are expected to rise an additional 50bp in the 2Q after a
recent rate hike by the Reserve Bank of India (RBI). Debt levels remained higher during the 1Q,
which should have a further impact on profitability. The prevailing higher interest rates and
inflationary environment should also have an impact on NCC’s real estate subsidiary. We reduce
our SOTP-based target price 19% to Rs68.70 from Rs84.40, reflecting the EPS cut, a lower
multiple for its core construction business due to slower growth expectations and execution
delays, and a lower valuation of its real estate subsidiary. We maintain a Hold.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher-than-expected interest expenses led to a 10% PAT disappointment in 1QFY12. With
interest rates expected to remain elevated in the near term, affecting the core business and
subsidiaries alike, we cut our TP 19% but maintain a Hold.
High interest cost dented the healthy EBITDA
In 1Q, the standalone company reported a 44% yoy decline in PAT, driven by high interest
expenses (up 118% yoy and 11% qoq). EBITDA came in at Rs1.17bn, up 10% yoy on the back of
a 5% yoy increase in sales. Lower raw material cost led to an EBITDA surprise of 9%, with
margins at 10.2% (up 47bp yoy). However, higher-than-expected interest expense resulted in a
10% PAT disappointment for us. Net debt rose 5% qoq to Rs24.6bn. Consolidated PAT declined
43% yoy, again on higher interest costs, despite a 15% increase in consolidated sales.
We cut our EPS forecasts 16% for FY12 and 19% for FY13
Our EPS forecast cuts are driven mainly by increased interest expense forecasts as we build in 1)
a higher interest rate and 2) higher-than-expected debt levels. Apart from this, we also raise our
depreciation forecast and cut our FY13 sales growth forecast, due to a slightly lower rate of
execution. Our FY12 sales growth forecast of 11% is still lower than management guidance of
15%. However, we built in a marginally higher margin for FY12.
Macro headwinds may continue to trouble in the near term
NCC’s core construction business may continue to underperform on higher interest costs.
Management indicated that interest costs are expected to rise an additional 50bp in the 2Q after a
recent rate hike by the Reserve Bank of India (RBI). Debt levels remained higher during the 1Q,
which should have a further impact on profitability. The prevailing higher interest rates and
inflationary environment should also have an impact on NCC’s real estate subsidiary. We reduce
our SOTP-based target price 19% to Rs68.70 from Rs84.40, reflecting the EPS cut, a lower
multiple for its core construction business due to slower growth expectations and execution
delays, and a lower valuation of its real estate subsidiary. We maintain a Hold.
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