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UBS Investment Research
NCC Ltd
P AT below expectations
Event: Misses estimates led by lower execution and higher interest cost
NCC reported Q1 revenues of Rs11.4bn (+5% y/y, UBS-e Rs12.3bn, consensus
Rs11.9bn), operating profit of Rs1.2bn (+10% y/y, UBS-e Rs1.1bn, consensus
Rs1.1bn), and PAT of Rs233m (+44% YoY, consensus Rs284m). The company is
confident of achieving Rs59bn of revenues in FY12 at the standalone level (it
achieved 95% of its budgeted revenues in Q1). Q1 order flow was Rs13.6bn.
Impact: Targeting Rs90bn+ of orders in FY12
Key segments for order growth include buildings, water, and roads (targeting
~Rs4bn of orders from this segment as momentum is good; unlikely to bid
aggressively though- has not won a road project in last 3yrs). It is also likely to get
a Rs50bn contract for its power project. Pondicherry road project will be
operationalized in Sep-11 and Himachal Sorang power plant in Mar-12.
Action: Looking for PE funds in infra vertical; targeting real estate sales
All clearances for the power project have been secured and entire Rs53bn debt has
been tied-up. Its earlier likely PPA with Karnataka has been cancelled by the govt
and it has no performance risk now of supplying power by 2014 (its bank
guarantee has been returned). Financial closure is likely to be announced shortly,
post which it plans to raise PE funding in its infra vertical. This will provide the
balance funds for that project and also growth capital for new road BOT projects. It
also plans to sell stakes in its various real estate projects to reduce leverage.
Valuation: Buy rating
We have a SOTP based PT of Rs136.
Key highlights of conference call
Power project:
— Already invested Rs1.5bn. Required to invest Rs9.7bn for 55% stake.
Requires to invest another Rs2bn for financial closure, which can be done
from existing funds. Post this, further investments would be required only
after 12-18m, by which time PE funding is likely to be secured.
— 100% of the coal linkage of the Somapeta power plant has been
transferred and all clearances have been secured. This will provide 70%
of the coal. For balance 30%, it is scouting for mines in Indonesia. Has
taken a 50% stake in a mine that will provide 1.5mt for 15yrs. Has
invested US$2m in this and could invested another Rs400-500m.
— The earlier likely PPA with Karnataka has been scrapped by the
government, its bank guarantee of Rs1.2bn has been returned and it no
longer has the performance risk of supplying power to that state by 2014.
Proposes to tie-up 990MW through PPAs, with about 500MW in AP.
Will participate in Case-1 bids.
— EPC contract- parent entity will get Rs50bn contract, and a mobilization
advance of Rs5bn
BOT projects: No further equity is required for existing road projects for
12-18months
— Himachal Sorang: Scheduled operations are expected to start by March
2012.It is a merchant power plant and company might go for short-term
PPAs for 1-2 years with state governments or sell it to PTC.
— Western UP: Toll collections are Rs1.8m/day on a pro-rata basis (for the
58km commissioned).
— BETL: Collecting Rs2.0m/day, compared to Rs1.4m a year ago.
Company expected benchmark collection levels are 2.5m/day.
Dubai project: Completed six floors of tower-1. Have called for next round
of payments from clients. Expects ~60% of the clients to pay. Will decide the
next course of action post that.
International business: Targets top line of Rs11bn. Current order book is
Rs21bn, to be executed over 2yrs
Net current assets: Net current assets in Q1 stood at Rs28.6bn comprising
inventory Rs9.7bn, receivables Rs.13.5bn, loan and advances Rs26.4bn and
total current liabilities at Rs20.4bn. Company debt collection period stood at
105 days, much higher than its desired level of 80 to 85days
Debt: Company had debt of ~Rs25bn in Q1. FY12 target debt levels are
Rs21-22bn. Plans to reduce it by selling stake/exiting from some existing
real estate projects.
Capex: Likely to invest Rs900m. Rs150m invested in Q1
NCC Ltd
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.
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
NCC Ltd
P AT below expectations
Event: Misses estimates led by lower execution and higher interest cost
NCC reported Q1 revenues of Rs11.4bn (+5% y/y, UBS-e Rs12.3bn, consensus
Rs11.9bn), operating profit of Rs1.2bn (+10% y/y, UBS-e Rs1.1bn, consensus
Rs1.1bn), and PAT of Rs233m (+44% YoY, consensus Rs284m). The company is
confident of achieving Rs59bn of revenues in FY12 at the standalone level (it
achieved 95% of its budgeted revenues in Q1). Q1 order flow was Rs13.6bn.
Impact: Targeting Rs90bn+ of orders in FY12
Key segments for order growth include buildings, water, and roads (targeting
~Rs4bn of orders from this segment as momentum is good; unlikely to bid
aggressively though- has not won a road project in last 3yrs). It is also likely to get
a Rs50bn contract for its power project. Pondicherry road project will be
operationalized in Sep-11 and Himachal Sorang power plant in Mar-12.
Action: Looking for PE funds in infra vertical; targeting real estate sales
All clearances for the power project have been secured and entire Rs53bn debt has
been tied-up. Its earlier likely PPA with Karnataka has been cancelled by the govt
and it has no performance risk now of supplying power by 2014 (its bank
guarantee has been returned). Financial closure is likely to be announced shortly,
post which it plans to raise PE funding in its infra vertical. This will provide the
balance funds for that project and also growth capital for new road BOT projects. It
also plans to sell stakes in its various real estate projects to reduce leverage.
Valuation: Buy rating
We have a SOTP based PT of Rs136.
Key highlights of conference call
Power project:
— Already invested Rs1.5bn. Required to invest Rs9.7bn for 55% stake.
Requires to invest another Rs2bn for financial closure, which can be done
from existing funds. Post this, further investments would be required only
after 12-18m, by which time PE funding is likely to be secured.
— 100% of the coal linkage of the Somapeta power plant has been
transferred and all clearances have been secured. This will provide 70%
of the coal. For balance 30%, it is scouting for mines in Indonesia. Has
taken a 50% stake in a mine that will provide 1.5mt for 15yrs. Has
invested US$2m in this and could invested another Rs400-500m.
— The earlier likely PPA with Karnataka has been scrapped by the
government, its bank guarantee of Rs1.2bn has been returned and it no
longer has the performance risk of supplying power to that state by 2014.
Proposes to tie-up 990MW through PPAs, with about 500MW in AP.
Will participate in Case-1 bids.
— EPC contract- parent entity will get Rs50bn contract, and a mobilization
advance of Rs5bn
BOT projects: No further equity is required for existing road projects for
12-18months
— Himachal Sorang: Scheduled operations are expected to start by March
2012.It is a merchant power plant and company might go for short-term
PPAs for 1-2 years with state governments or sell it to PTC.
— Western UP: Toll collections are Rs1.8m/day on a pro-rata basis (for the
58km commissioned).
— BETL: Collecting Rs2.0m/day, compared to Rs1.4m a year ago.
Company expected benchmark collection levels are 2.5m/day.
Dubai project: Completed six floors of tower-1. Have called for next round
of payments from clients. Expects ~60% of the clients to pay. Will decide the
next course of action post that.
International business: Targets top line of Rs11bn. Current order book is
Rs21bn, to be executed over 2yrs
Net current assets: Net current assets in Q1 stood at Rs28.6bn comprising
inventory Rs9.7bn, receivables Rs.13.5bn, loan and advances Rs26.4bn and
total current liabilities at Rs20.4bn. Company debt collection period stood at
105 days, much higher than its desired level of 80 to 85days
Debt: Company had debt of ~Rs25bn in Q1. FY12 target debt levels are
Rs21-22bn. Plans to reduce it by selling stake/exiting from some existing
real estate projects.
Capex: Likely to invest Rs900m. Rs150m invested in Q1
NCC Ltd
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.
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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