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Disappointing numbers
NCC reported very disappointing numbers for the quarter. Every alternate quarter
has been a disappointment from NCC, and this was one. Revenue lower by 13%
and EBITBA margins down by a whopping 365bps have taken net profit to
(Rs95mn). The reasons are the same: general economic slowdown and a few
project specific issues. We have reduced our numbers sharply and downgraded
the rating from Buy to Hold. The stock has seen a sharp 60% rise since our upgrade
in Jan’12 and we believe the risk-reward is not favourable. We advice investors to
consider Sadbhav Engineering which is our top pick.
Operational numbers disappointing: Revenue lower by 13% and EBITDA
margins down by 365bps impacted net profit. We expected Rs307mn in net profit
but the company delivered a loss of Rs95mn. The reasons cited for lower margins
were 1) general economic slowdown 2) labour shortages 3) lower revenue
impacting absorption of overheads 4) a few project specific issues. Working capital
situation improved marginally from Q2FY12, but investors should note that this
was due to substantial amount of advance money received from its power
subsidiary. Debtor’s days have deteriorated to 108 from the company’s target of
80days.
Order-Intake strong, but mostly from internal power: NCC has an order-book of
Rs220bn (around 3.5X FY11 consolidated revenue) and reported order-intake of
Rs100bn in 9MFY12 period. The company also included internal power EPC orders
worth Rs53bn in Q3FY12 and this order will contribute 25% of the total order-book
and impact the financials of the company going forward. Financial closure of the
project is awaited (REC, PFC and ICICI have sanctioned money) whereas REC and
PFC have also disbursed their first installments). PPA does not exist and the
company is trying for 500MW PPA with the AP government.
We downgrade the stock to hold as stock ran up by 60% post our upgrade in
Jan, and carry forward our valuation on FY14 numbers: NCC stock has seen a
sharp run up by 60% after our upgrade in Jan’12 and outperformed all other stocks
in our coverage (we placed it as our best buys in the construction sector). We have
reduced our estimates for FY12 & FY13 sharply and made marginal changes in our
FY14 numbers. We believe, the stock at the current market price does not present a
favorable risk-reward especially after the 60% spike in one month. Hence, we
downgrade our rating to Hold from Buy earlier. Our new target price is Rs57 (7%
downside). We advise investors to shift to a better stock like Sadbhav Engineering
which presents better risk-reward at current market price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Disappointing numbers
NCC reported very disappointing numbers for the quarter. Every alternate quarter
has been a disappointment from NCC, and this was one. Revenue lower by 13%
and EBITBA margins down by a whopping 365bps have taken net profit to
(Rs95mn). The reasons are the same: general economic slowdown and a few
project specific issues. We have reduced our numbers sharply and downgraded
the rating from Buy to Hold. The stock has seen a sharp 60% rise since our upgrade
in Jan’12 and we believe the risk-reward is not favourable. We advice investors to
consider Sadbhav Engineering which is our top pick.
Operational numbers disappointing: Revenue lower by 13% and EBITDA
margins down by 365bps impacted net profit. We expected Rs307mn in net profit
but the company delivered a loss of Rs95mn. The reasons cited for lower margins
were 1) general economic slowdown 2) labour shortages 3) lower revenue
impacting absorption of overheads 4) a few project specific issues. Working capital
situation improved marginally from Q2FY12, but investors should note that this
was due to substantial amount of advance money received from its power
subsidiary. Debtor’s days have deteriorated to 108 from the company’s target of
80days.
Order-Intake strong, but mostly from internal power: NCC has an order-book of
Rs220bn (around 3.5X FY11 consolidated revenue) and reported order-intake of
Rs100bn in 9MFY12 period. The company also included internal power EPC orders
worth Rs53bn in Q3FY12 and this order will contribute 25% of the total order-book
and impact the financials of the company going forward. Financial closure of the
project is awaited (REC, PFC and ICICI have sanctioned money) whereas REC and
PFC have also disbursed their first installments). PPA does not exist and the
company is trying for 500MW PPA with the AP government.
We downgrade the stock to hold as stock ran up by 60% post our upgrade in
Jan, and carry forward our valuation on FY14 numbers: NCC stock has seen a
sharp run up by 60% after our upgrade in Jan’12 and outperformed all other stocks
in our coverage (we placed it as our best buys in the construction sector). We have
reduced our estimates for FY12 & FY13 sharply and made marginal changes in our
FY14 numbers. We believe, the stock at the current market price does not present a
favorable risk-reward especially after the 60% spike in one month. Hence, we
downgrade our rating to Hold from Buy earlier. Our new target price is Rs57 (7%
downside). We advise investors to shift to a better stock like Sadbhav Engineering
which presents better risk-reward at current market price.
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