Nagarjuna Construction Co.: Results disappoint across the board :Kotak Sec,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Nagarjuna Construction Co. (NJCC)
Construction
Results disappoint across the board. NCC reported weak results with 9% yoy decline
in revenues, 75% decline in PAT (to Rs114 mn). Aggressive FY2012E guidance of Rs56 bn
standalone revenues implies strong asking rate (24% growth) for 2H. Stake sale in BOT
assets may help (lower debt burden, indicate value for assets); but NCC has made an
additional Rs2 bn investment in its power project. Retain BUY on likely peaking of interest
cost, attractive valuations (3X FY2013E EPS, Rs17 bn investments + advances to subs).
Results disappoint across the board; sharp yoy decline on increased interest cost
NCC reported 2QFY12 revenues of Rs10.9 bn, down 9% yoy versus our estimate of flat yoy.
EBITDA margin declined by 75 bps yoy to 9.5%, about 30 bps lower than our estimate of 9.8%.
High interest cost (on higher debt levels and interest rate) marred net PAT results; NCC reported a
net PAT of Rs114 mn, significantly down (by 75%) versus 1QFY11 PAT of Rs460 mn.
NCC reported consolidated revenues of Rs14.7 bn, up 14.6% yoy and EBITDA margin of 14.3%
(up 200 bps yoy). The revenue growth and margin expansion were likely led by higher revenue
contribution from BOT projects. High interest and depreciation expenses led to a 40% decline in
net PAT to Rs329 mn, versus Rs648 mn in 2QFY11.
Aggressive revenue and inflows guidance implies strong asking rate in 2HFY12E
NCC has guided for strong revenues of Rs56 bn (our estimate Rs53 bn) at the standalone and
Rs72 bn at the consolidated level for FY2012E. This implies a strong revenue growth of about
24% yoy in 2HFY12E at the standalone level. Expects order inflows of about Rs90 bn (our estimate
Rs68 bn) in FY2012E excluding in-house power project order (likely size of about Rs50 bn).
Reported 1HFY12 inflows of Rs31 bn, down 11% yoy, were below par.
Asset sales (PE) may help; but NCC adds to power project investment and is on lookout for BOTs
We believe that progress on sale of assets/ stake in BOT projects will help the company in terms of
(1) reducing debt burden on the parent (thereby reducing interest obligations) and (2) providing
some basis for potential value generation from the assets. However, instead NCC has made an
additional equity investment of Rs2 bn in the power project (already invested Rs1.5 bn) in Oct ’11
as stipulated by the lenders (has tied up Rs53 bn of debt requirement). This adds to the strain on
the standalone balance sheet as the equity needs to be financed from the standalone entity.
Revise estimates and target price to Rs85/share; reiterate BUY
We revise our estimates to Rs4.1 and Rs5.5 from Rs5.7 and Rs7.7 for FY2012E and FY2013E and
TP to Rs85 (from Rs100). Retain BUY on (1) likely peaking of interest cost, (2) attractive valuations
(3X FY2013E EPS, Rs17 bn investments + advances to subs), and (3) well-diversified backlog.