NCC
Asset sale to be the key trigger; Buy
Key takeaways
Revenue performance stable. Following its strong order book, we expect
NCC’s 3QFY14 revenue to grow 13.7% yoy (1% qoq). We estimate its
EBITDA and PAT margins at 8% and 0.5% respectively. Management has
guided to 10-15% FY14 revenue growth. This appears reasonable given its
present order book of `180bn and the pickup in execution at its power
project. The EBITDA margin of the present order book is only ~8% (25%
from the low-margin captive power project). Projects in the pipeline (mostly
in buildings, water and the international segment) are, however, being bid at
8-10% margins.
High profit sensitivity to interest rate. Interest charges constitute ~90% of
the company’s EBITDA. This percentage is expected to fall during FY14-15
with a high probability of a rise in OPM and a drop in interest charges. After
some debt repayment in FY13, we expect savings in interest charges during
the 3QFY14.
Update on fund raising. The company is seeking to shift out of its three
BOT projects (Himachal Sorang, Bangalore Elevated, Western UP) and some
of its real-estate ones. So far, it has successfully sold real estate of `1bn. The
NCC power project has been working to schedule and the first phase will be
completed by Mar’15.
Our take. We estimate NCC’s 3QFY14 revenue to grow 13.7% yoy (1%
qoq), its EBITDA margin to come at 8%, with only a small net profit margin
due to the high interest burden. We believe its fund-raising measures, strong
profit growth over FY14-15 and lower interest charges to be key stock price
triggers. We maintain a Buy, with a price target of `41, based on 6x PE of the
FY14e construction business (`16) and 0.5x P/BV for its road BOT (`8),
power (`10) and real-estate businesses (`7). Risks. Rise in interest rates,
slowdown in order inflows.
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Asset sale to be the key trigger; Buy
Key takeaways
Revenue performance stable. Following its strong order book, we expect
NCC’s 3QFY14 revenue to grow 13.7% yoy (1% qoq). We estimate its
EBITDA and PAT margins at 8% and 0.5% respectively. Management has
guided to 10-15% FY14 revenue growth. This appears reasonable given its
present order book of `180bn and the pickup in execution at its power
project. The EBITDA margin of the present order book is only ~8% (25%
from the low-margin captive power project). Projects in the pipeline (mostly
in buildings, water and the international segment) are, however, being bid at
8-10% margins.
High profit sensitivity to interest rate. Interest charges constitute ~90% of
the company’s EBITDA. This percentage is expected to fall during FY14-15
with a high probability of a rise in OPM and a drop in interest charges. After
some debt repayment in FY13, we expect savings in interest charges during
the 3QFY14.
Update on fund raising. The company is seeking to shift out of its three
BOT projects (Himachal Sorang, Bangalore Elevated, Western UP) and some
of its real-estate ones. So far, it has successfully sold real estate of `1bn. The
NCC power project has been working to schedule and the first phase will be
completed by Mar’15.
Our take. We estimate NCC’s 3QFY14 revenue to grow 13.7% yoy (1%
qoq), its EBITDA margin to come at 8%, with only a small net profit margin
due to the high interest burden. We believe its fund-raising measures, strong
profit growth over FY14-15 and lower interest charges to be key stock price
triggers. We maintain a Buy, with a price target of `41, based on 6x PE of the
FY14e construction business (`16) and 0.5x P/BV for its road BOT (`8),
power (`10) and real-estate businesses (`7). Risks. Rise in interest rates,
slowdown in order inflows.
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