Nagarjuna Construction - Rights Issue Fortifies Balance Sheet :: Edelweiss

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NCC Asset sale to be the key trigger; Buy: :: Anand Rathi

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.

NCC - Q1 FY13:: Microsec Research

NCC Ltd announced its Q1 FY13 results on 8^thNovember 2012.

NCC has posted consolidated net profit of INR 20.26 Crore for the second quarter ended September 30, 2012 as compared to Rs 31.62 Crore for the year agoquarter, representing a decrease of 35%.Total income has increased from INR 1601.83 Crore for the quarter ended September 30, 2011 to INR 1792.96 Crore for the quarter ended September 30, 2012, representing an increase of 11.93%.

EBITDA Margin of the company decreased from 21.42% to 11.39%, registering a decline of 10.03%. NCC has a order book of INR 19639 Crore.

NCC Ltd. Quarterly-Y-O-Y(%)-Consolidated- [INR-Crore]
DESCRIPTION	Q2 13	Q2 12	Q1 13	YOY	QOQ
Revenues	1792.96	1601.83	2054.62	11.93%	-12.74%
Total Expenditure	1588.82	1258.74	1880.43	26.22%	-15.51%
EBITDA	204.14	343.09	174.19	-40.50%	17.19%
EBIDTA Margins	11.39%	21.42%	8.48%	(1,003.30)BPS	290.77 BPS
Other Income	23.56	23.33	8.22
Operating Profit	227.71	366.41	182.40
Interest	141.60	201.86	135.74
PBDT	86.11	164.56	46.67
Depreciation	57.46	118.61	25.88
PBT	28.65	45.95	20.79
Tax	8.55	14.14	4.50
Profit After Tax	20.10	31.81	16.29
Minority Interest	0.16	-0.44	-2.16
Shares of Associates	0.08	-0.11	-9.51
Consolidated Net Profit	20.26	31.26	4.62	-35.19%	338.53%
PAT  Margins	1.13%	1.95%	0.22%	(82.15)BPS	90.51 BPS
Equity Capital	51.32	51.32	51.32
Face Value (In Rs)	2.00	2.00	2.00
Diluted EPS	0.79	1.22	0.18	-35.25%	338.89%

Regards,

Team Microsec Research

ACCUMULATE Nagarjuna : Target Rs 60: Kotak Securities

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NAGARJUNA CONSTRUCTION COMPANY (NCC)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.60 FY13E P/E: 17.8X
Result highlights: Revenues of the company were lower than our estimates
while operating margins were also impacted by higher costs and lower than
expected execution. Company posted net loss for the quarter and
profitability was impacted by high interest outgo and came much lower
than our estimates. Order inflow till now is lower than estimates. We
reduce our estimates and downgrade the stock to ACCUMULATE from BUY
earlier on the stock. We expect stock to underperform till order inflow,
execution ramps up and interest rates come down.
q Revenues declined by 5% YoY due to lower execution on account of lack
of order inflows, adverse macro-economic scenario of high interest rates
as well as labor unavailability.
q Operating margins stood at 6.1%, lower than our estimates. Company
has also lowered its full year operating margin guidance from 9.5-10%
earlier to 8.5% now.
q Earnings were impacted by higher interest outgo as well as lower than
expected execution and margins.
q We cut our FY12 and FY13 estimates to factor in poor performance witnessed
during 9MFY12. At current price, stock is trading at 17.8x P/E and
8.4x EV/EBITDA on FY13 estimates. Continued high interest rates coupled
with high working capital cycle during the fiscal has been impacting net
profit margins adversely for the company. We downgrade the stock to
ACCUMULATE from BUY earlier with a revised price target of Rs.60 (Rs.80
earlier)

NCC Ltd: Disappointing numbers :Centrum,

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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.

Sell NCC Ltd; Target : Rs 55 :: ICICI Securities (pdf link)

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CLICK here for PDF post link


A   t a l e   o f   d i s a p p o i n t m e n t …
NCC  reported  another  set of disappointing quarterly number with
sluggish execution (topline at | 1263.6 crore vs. our estimate of | 1381.1
crore) and dismally low margins of  ~6.1% vs. our estimate of ~9.6%.
This was due to a multitude of reasons such as continued slower
execution owing to the weak investment environment and client side
payment delays, slower activity in election bound states such as Tamil
Nadu and West Bengal, cost & time overruns, labour unavailability and
wage inflation. Owing to the execution slip and margin disappointment,
NCC reported a net loss of | 9.5 crore vs. our estimate of net profit of |
26.3 crore. Given the steep cut in FY12E and FY13E earning estimates by
~50% and 28%, respectively, poor return ratios, execution sluggishness
and equity commitment to subsidiaries, we now downgrade the stock to
SELL and cut our  SOTP target price to | 55/share.
ƒ Stretched working capital concerns remains …
The major deterioration in the working capital has been in terms of rise
in loans and advances, which stood at | 3180 crore in Q3FY12 vs. | 2732
crore in Q2FY12. Additionally, the company has also indicated that it is
confident of bagging one or two packages of road projects totalling
| 2000 crore from NHAI in FY12. The  same, if it materialises, would
entail equity investment of ~|  400-500 crore in addition to equity
commitment of | 620 crore in power.  The funding for this seems an
uphill task at the current balance sheet level.
ƒ Order book strong… execution continues to remain weak
NCC has secured orders worth  ~| 6850 crore in Q3FY12 and | 9943
crore in 9MFY12 (including captive power EPC orders worth ~ | 5,200
crore) to close the order book at | 21,990 crore, implying a TTM order
book to bill of 4.4x. While the management has maintained its guidance
of order inflow of | 14,000 on the  back of road projects awards
anticipation worth ~| 2000 crore from NHAI in FY12, the execution has
not picked up on the existing order book.
V a l u a t i o n
At the CMP, the stock is trading at 6.1x FY13E adjusted P/E and 0.6x FY13
P/BV. Given the subdued earnings and return ratios and huge equity
commitment towards subsidiaries, we now downgrade the stock to SELL
and cut our SOTP target price to | 55/share.

NCC :: Avendus 2012 top ideas

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Market price ignoring value of BOT assets
 NJCC’s current market cap of INR9bn ignores the true value of the
INR7.5bn it has invested as equity in road and power projects. Our
Dec12 TP of INR52 ‐ arrived at after taking a discounted P/B of 0.7x for
BOT assets ‐ implies an upside of 60%. The power project has received
sanction letters from lenders, and a likely stake sale to PE investors
would help unlock value. Even excluding the power project value in the
worst case, there would be a 26% upside in the stock. We cut our
FY12f‐FY14f EPS by up to 17%, factoring in lower order inflows and
execution. Our TP is rolled over to Dec12 and cut to INR52 on factoring
in lower earnings and the value of investments. Maintain Buy.
60% upside even after valuing BOT assets at discounted P/B of 0.7x
NJCC’s current market cap of INR9bn ignores the value of the INR7.5bn invested
as equity in road and power projects ‐ on increased risk aversion to the sector.
Our Dec12 TP of INR52 implies a 60% upside. Our TP is based on 0.7x P/B for
BOT assets ‐ a discount to: (i) P/B of 1.5x and above at which PE deals for road
and power assets have been concluded in the past 12 months and (ii) one‐year
forward P/B of 0.9x for IL&FS Transportation Networks (ILFT IN, Hold). Assuming
a P/B of 1.0x, (a c29% discount to our implied P/B target for ILFT’s BOT assets),
the potential upside would be higher at 94%.
Underperformance driven by fall in profitability and uncertain outlook
Higher interest rates and a slow down in orders have led to increasing pressure
on profitability. A rise in working capital has led to an increase in gearing and a
slow down in execution – leading to significant contraction in net margins and a
sharp y‐o‐y fall of up to 77% in PAT over the past few quarters.
In worst‐case, investments in real estate and power may be sunk
Assuming at worst that the power project fails to take off, the potential upside
would reduce to 26%. NJCC also has large exposure to the real estate business
in the form of equity (c15% of parent networth) and advances (c17% of parent
borrowing). In case of a sharp downturn in the real estate market, the company
may need to write off some investments or provide additional funding support.
Stake sale in power and road assets a catalyst for value unlocking
NJCC has received sanction letters from lenders for the 1320MW power project
and financial closure is likely by Mar12. The company would need to infuse
another cINR6bn in the power project. Given its limited resources, a PE stake
sale in assets is imperative and would help form a benchmark for valuations.
Cut TP to INR52; maintain Buy
We cut our FY12f‐FY14f EPS by up to 17%, factoring in lower order inflows and
execution. We value the standalone business at INR23/share, based on the
average value arrived using a P/E of 5.0x and EV/EBITDA of 5.0x. We ignore the
value of the real estate business (0.5x P/B earlier) and value the BOT assets and
international business at INR29/share using a 0.7x P/B multiple (1.0x earlier).
Based on the SOTP method, we arrive at our Dec12 TP of INR52 (INR72 earlier)
– implying an upside of 60%. Maintain Buy. Prolonged high interest rates and a
decline in the investment rate are the key risk factors.


Link to main report and other companies

Deep value holds promise of strong rebound :: Avendus

NJCC (NGRJF, Buy) BofA Merrill Lynch,

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NJCC (NGRJF, Buy)
Bear Case: What can go wrong
􀂄 In the Bear markets, delay in capex could slow down order inflows. We
assumed 17% fall in FY13E order inflows and 11% growth in FY14E inflows.
Further, order execution to slow down, hence, cut execution rate by 20%
over FY13-14E.
􀂄 Consequently, we estimate 12%YoY fall in FY13E sales and 4% growth in
FY14E. Further assumed 10-20% higher debtor days in FY13-14E.
􀂄 We expect margin to fall by 50bps to ~9.2% over FY13-14E (vs 9.8% in
FY12E). Further, expect 25-50bps higher interest rate in FY13-14E.
􀂄 Consequently, we expect 68-71% cut in base EPS over FY13-14E leading to
decline in earnings at -28% CAGR over FY11-14E.
􀂄 In Bear markets, we expect parent business to de-rate and trade at lower PE
multiple of 5x (60% discount to E&C major). Further, write off NCC Power
from the valuation as it may not get equity to fund project and raised holdco
discount to 50% for NCC Urban and 30% to other subsidiaries value..
Base Case:
􀂄 In the Base case, we assumed the order inflows to grow at 18%YoY in
FY13E and 11% in FY14E.
􀂄 We estimate sales growth of 18%YoY in FY13E and 8% in FY14E. Further,
assume, margin to remain flat at ~9.7% over FY12-14E
􀂄 Consequently, we estimate an EPS CAGR of 6% over FY11-14E.
􀂄 In the base case, we expect parent business to de-rate & trade at PE
multiple of 6x (7x) 1-year forward (~55% discount to E&C major).
􀂄 To factor in de-rating of sector / stock multiple, we cut our PO by 11% to
Rs95/sha re valuing stock at 0.93x P/BV of FY13E.
Risk-Reward: Favorable but only in risk-on mkt
􀂄 In the bear case, we expect the stock could trade at Rs46/share valuing at
0.47x FY13E parent P/BV.
􀂄 In the base case, we expect the stock could trade at Rs95/share valuing at
0.93x FY13E parent P/BV.
􀂄 Overall, the risk-reward appears favorable

NCC (NCCL.BO) : Q2FY12 Disappoints, PAT 48% below CIRA   Citi research

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NCC (NCCL.BO)
Alert: Q2FY12 Disappoints, PAT 48% below CIRA
 Recurring PAT down 77% YoY, 48% below CIRA – NCC reported Q2FY12 recurring
PAT of Rs114mn, down 77% YoY and 48% below our estimates (~57% below
consensus). The PAT miss was due to (1) ~11% revenue miss (2) ~24% lower other
income/other operating income (3) sharp rise in interest costs (up 89% YoY, ~8%
higher than CIRA est.)
 FY12 revenue guidance cut? NCC has guided for standalone revenues of Rs56bn
(NCC indicated Rs59bn after Q1FY12). Management mentioned that it had achieved
~95-96% of budgeted standalone sales in 1HFY12 with minor slippages in Q2FY12
due to delays in (1) road projects in UP due to extraordinary rain, (2) few projects in AP
due to labor strikes and political agitations. Implies 21% YoY growth for H2FY12 –
NCC expects incremental revenues of ~Rs5bn in H2FY12 to make up for the shortfall
in H1FY12, largely from water, electrical and irrigation segments. where the company
has received new orders recently.
 Order Inflow guidance of ~Rs90bn maintained - The buildings segment contributed
to ~55% of the H1FY12 order inflows. Management mentioned that while government
sector constituted ~85-90% of the current order book, the share of private orders could
go up with their higher presence in the buildings segment. EBITDA guidance
maintained, but PAT remains a worry – Management was confident of maintaining
EBITDA margins at current levels, but indicated that the real issue was at the PAT level.
 Other Takeaways – (1) The average borrowing rate has gone up by ~50bps QoQ.
Management mentioned that the company is now borrowing at ~11.25%. (2) The
company has brought down its receivable days to ~104 days (down from ~108 in
Q1FY12 and ~105 days in Q4FY11).
 Loan documentation signed for Nelcast project - The project cost of ~Rs71bn is
expected to be funded via debt:equity of 3:1. Management mentioned that the
company has signed the loan documentation with REC, PFC and ICICI Bank and
expects to declare closure in Nov 2011 after satisfaction of pre-disbursement criteria.
An interest rate of ~13% is applicable for the first year. For the coal linkage, NCC
expects to import ~15mmt from its mine in Indonesia. NCC has invested ~Rs80-100mn
out of Rs150mn, which is its total estimated investment in the mine.
 Update on projects – (1) All BOT projects are operational except Pondicherry
Tindivanam, where the management expects CoD in Nov. (2) the Himachal Sorang
project is on track to achieve CoD in Mar 2012. NCC is in discussions for ~100MW
short term PPAs where the company expects rates of ~Rs3.50-4.00/kWh. Management
indicated an incremental equity requirement of ~Rs200-300mn in the projects.

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

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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).

BuyNCC Ltd; Target : Rs 64 :: ICICI Securities

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E x e c u t i o n   m i s s e s   i m p a c t   r e s u l t s …
NCC reported disappointing Q2FY12 results led by slower execution,
lower margins and higher interest costs. The company reported a topline
of | 1090 crore in Q2FY12 vs. our estimate of | 1273 crore on account of
weak execution. The reported PAT at | 11.4 crore was lower than our
estimate of | 29.3 crore due to execution miss, lower OPM and higher
interest cost (up ~89% YoY to | 71 crore) during the quarter. The
management has also lowered its FY12 standalone revenue guidance to |
5600 (implying YoY growth of ~20.7% in H2FY12) from | 5900 earlier. We
believe this is still an uphill task considering the H1FY12 performance and
challenging macroeconomic environment. We maintain our BUY rating
with a price target of | 64 per share purely on account of valuation.
ƒ Disappointing performance…
NCC reported a topline of | 1090 crore in Q1FY12 vs. our estimate of |
1273 crore on account of weak execution. The EBITDA margin at 9.5%
in Q1FY12 was lower than our estimates of 10%. The reported PAT at |
11.4 crore was lower than our estimate of | 29.3 crore due to execution
miss, lower OPM and higher interest cost (up ~89% YoY to | 71 crore).
ƒ Guidance for FY12 lowered, still an uphill task…
The management has lowered its standalone revenue guidance to |
5600 crore vs. | 5900 crore guided earlier. We believe that the new
revenue guidance (implying YoY growth of ~20.7% in H2FY12) is an
uphill task given the H1FY12 performance and challenging
macroeconomic environment. Therefore, we have now built in lower
growth of ~10% YoY in H2FY12.
ƒ Order book guidance remains strong…
NCC secured orders worth | 1,736 crore in Q2FY12 to close the order
book at | 16,570 crore at the end of the quarter. The management has
guided for order inflow of | 9,000  crore (ex – Nelcast power project
worth ~| 5,000 crore expected in FY12 only) as it aims to bag road
projects worth ~| 2500 crore from NHAI in FY12.
V a l u a t i o n
At the CMP, the stock is trading at 2.8x FY13E adjusted P/E and 0.5x FY13
P/BV. We maintain our  BUY recommendation on the stock with a price
target of | 64 per share purely on account of valuation.

NCC Limited (NCCL.BO, Buy) Close to trough valuations ::Goldman Sachs,

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NCC Limited (NCCL.BO, Buy)
Close to trough valuations compensate for structural weakness – potential for substantial mean
reversion when the order inflow and rate cycle reverses
 We continue to highlight NCC Limited (NCC) as our top-pick within the mid-cap construction space for its: (1)
relatively attractive valuation (68% discount to its historical P/B); (2) better visibility than its peers on nearterm
growth prospects, and (3) relatively strong balance sheet, with a lower equity requirement relative to its
peers (lowest proportion of captive projects in order book). We reiterate our Buy rating on NCC.
 The company’s diverse order book makes it relatively safe to execute on problems on region and segmentspecific
issues (35% of its order book is in buildings and housing spread between 8 segments and 15% of its
order book is in its international division).
 Although order inflows have been weak recently – FY11 inflow declined 23% and 1Q FY12 declined 33% – the
company’s previous track record of growing faster than the industry during 2005-2008 supports our mean
reversion argument for the stock.
 Equity requirement over FY12E in the current BOT projects under construction of Rs2.75bn could be funded
through internal accruals, in our view. However, we think equity requirement to fund the Nelcast Power Plant
may require the need to raise additional capital (largely debt, though, in our view).
Catalyst
 Start of toll collection on the new road projects over the next quarter will be key as these projects start to
contribute to revenue.
 Financial closure for the Nelcast Power Plant will strengthen the company’s ability to tie up funds and
execute this large-scale project.
Valuation
 Post the 62% decline in NCC’s stock price ytd, we believe the risk-reward for the stock is attractive. We
believe the recent decline in the company’s stock price is unjustified and more than factors in
concerns over regular equity dilution and its potential to improve capital efficiency.
 We lower our 12-month SOTP-based target price to Rs76 (from Rs118), as we value the domestic construction
business on 6X average FY12E and FY13E EV/EBITDA (from 10X P/E earlier, in line with our target multiple for
construction peers), international business on 7X average FY12E and FY13E EPS (from 10X earlier, reducing
growth prospects and higher risk due to fixed cost contracts), and we continue to value BOT projects at cost
of equity of 15%.
 NCC is trading at 7.6X 12-month forward P/E (parent basis), a 40% discount to its historical median. We lower
our FY12-FY14 EPS estimates by 10%-22% based on slower-than-earlier assumed order inflows and slightly
higher interest expenses.
Key downside risks
 (1) Commodity and raw material price increases, (2) higher tax provisions, and (3) capex weakness.

Read about other companies in sector recommended by Goldman Sachs and top picks in link below:

Goldman Sachs:: Slowdown in capex continues: Sector at trough valuations

NCC::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Consolidated revenue growth guidance of 16% for FY12
 For FY12, the management guided consolidated revenue at INR72b (up 16%),
standalone revenue at INR58b (up 14%), international construction revenue at INR11b
(flat) and real estate/BOT project revenue at INR4.5b.
 Order intake guidance excluding in-house power project BTG (1,320MW) order of
INR50b stays at INR90b. This includes roads (INR20b), buildings (INR35b), water
(INR15b), and others.
EBITDA margin to be maintained at 9.5% in FY12
 NCC is likely to maintain its EBITDA margin at 9.5-10% in FY12. This will be driven
by: (1) escalation-based contracts contributing 70% of the order book; NCC will
benefit from the pass through, given rising commodity prices, (2) favorable change
in order book resulting in an increase in relatively high-margin buildings (now
contributing 38% of the order book, up from 24% in FY10) and decline in transport
contribution (at 4% now from 15.3% in FY08).
 The share of international orders in revenue has declined to 16% in 1QFY12 from
21% in 1QFY11; we expect this percentage to decline further in FY12.
Cumulative investments in RE/BOT projects at INR12b, including advances
 NCC has so far invested INR12b in real estate and road BOT projects (including
advances of INR2.9b). The outstanding equity commitment stands at INR1.8b-2b.
 Four out of five road BOT projects are operational and the remaining one is likely to
achieve COD by September 2011. The operational road projects should improve
NCC's operational cash flows. The Brindavan Infra road project is complete. Toll
collection, which was INR1.4m per day initially, has now reached INR2m per day.
NCC expects this to reach INR2.5m per day by FY12-end. UP Tollway has also achieved
COD and toll collection started from April 2011; current collection is INR1.8m per
day. The Pondicherry Tindivam project is in advanced stage of completion and it is
likely to declare COD by September 2011.
 NCC expects financial closure of its 1,320MW thermal power project in Krishnapatnam
in the next two-three months. The project lenders have asked for 35% upfront
equity contribution for the release of 35% of the debt. NCC's total equity requirement
in the project stands at INR9.7b, out of which it has already invested INR1.5b. To
achieve the threshold of 35% equity contribution, NCC has to invest INR2b more.
The total project cost is at INR70b, to be financed with D:E of 3:1.
Valuation and view
 Buy with an SOTP-based price target of INR104 - core business: INR71/share (6x
FY13E EV/EBITDA) and BOT/RE investments: INR33/share.

NCC bags orders worth `629cr ::Angel Broking,

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NCC bags orders worth `629cr
Nagarjuna Construction Company (NCC) has bagged orders aggregating to `629cr in
various segments. The first order worth `399cr is from the Water Resources Division
Raigarh, Chhattisgarh, for the construction of Saradih Barrage with vertical lift gates. The
second order worth `159cr from Maharashtra State Electricity Distribution Co. Ltd.
(MSEDCL), Mumbai, involves turnkey contracts for Single Phasing Scheme. The last order
valued at `71cr is secured from the Bharat Coking Coal Ltd., Dhanbad, for removal of
over burden, extraction and transportation of coal. Construction period for these orders is
12-24 months. With these orders, the company’s outstanding order book stands at
~`17,000cr (3.4x FY2011 revenue), which provides good revenue visibility.
We have valued NCC on an SOTP basis with a target price of `82/share by assigning 8x
FY2013E earnings (standalone). The company’s real estate venture has been valued on
P/B basis and its BOT assets have been valued on DCF basis. Our target price implies an
upside of ~33.2% from current levels. Hence, we maintain our Buy view on the stock with
a target price of `82.

UBS:: India Construction - Valuations attractive; NCC preferred

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UBS Investment Research
India Construction Note
V aluations attractive; NCC preferred
􀂄 Event: Construction stocks underperformed ~30% in last three months
Mid-cap construction companies have underperformed the Sensex by about 30% in
the last three months. Key reasons in our view include: 1) high interest rates, 2)
increased leverage, and 3) poor Q1FY12 results. We think most of the concerns are
in the price and valuations are compelling at ~0.5x FY12E book. Key catalysts
include: 1) H2 is typically strong for construction activity; and 2) companies taking
measures to reduce leverage (though improved collection efficiencies and asset
sales). Despite near-term challenges, risk-reward looks favourable.
􀂄 Impact: Reducing earnings factoring lower execution/higher interest costs
Q1FY12 results of construction companies were below expectations primarily due
to lower execution and higher interest costs- we make changes and expect flat to
8% revenue growth (vs. ~15% earlier). We also assume higher interest costs. Now,
we are about 25% below consensus on earnings.
􀂄 Action: NCC is top pick, maintain Buy on IVRCL and Sell on Punj
Key triggers for NCC over next 12m include: 1) commissioning of Pondicherry
road/Himachal Sorang power projects by Sep11/Mar-12, 2) potential PE funding in
infra vertical, and 3) Rs50bn order from Nelcast power project. For Punj, we
believe risks still remain: 1) Disputes pertaining to the ONGC contract (arbitration
process could be long-drawn); and 2) recovery of assets in Libya/Simon Carves.
􀂄 Valuations: Multiples close to trough levels
NCC/IVRCL’s core construction business is trading at 6x/5x FY12 EPS. Though
Punj is trading at 0.6x P/B, risks to earnings are quite significant in our view.

Buy NCC Ltd; Target : Rs 74 ::ICICI Securities

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R e s u l t s   b e l o w   e x p e c t a t i o n …
NCC Limited’s (NCC) Q1FY12 performance was below our expectation on
account of slower execution and higher interest expenses. While the
EBITDA margin at 10.2% was higher than our estimates of 9.5% due to
lower contribution from the low margin road segment, the bottomline
was impacted owing to high interest expenses. The management has
guided for topline of | 5900 crore and order inflow of | 9000 crore in
FY12. However, concerns remain on equity requirement for the power
plant and NCC’s aggressive plan in  the road segment. Nonetheless, the
current valuation discounts most of the negatives in the stock.
ƒ Higher interest cost impacts bottomline
NCC reported muted topline growth of ~5% YoY growth to | 1141
crore on account of weak execution. The EBITDA margin at 10.2% was
higher than our estimates of 9.6% due to lower contribution of the low
margin road segment. However, the bottomline at | 23.3 crore vs. our
estimates of | 27.9 crore, was impacted by the higher interest cost,
which saw a YoY jump of 118.1% to | 64 crore.
ƒ Equity funding for subsidiary to stretch balance sheet further
NCC has total equity requirement of | 970 crore for the power project
over the next four years (| 150 crore already invested). Additionally,
the company is looking to bag road projects worth | 4,500-5,000 crore
in FY12. If this materialises, it would entail equity requirement of |
1000-1250 crore over the couple of  years. At the given stretched
balance sheet, the funding support from the parent level seems an
uphill task. Although NCC is looking for a stake sale in NCC Infra to a
private equity player, the present market condition does not suggest it
is possible in near term.
V a l u a t i o n
Though there would be some pain in the near term due to rising debt
level and interest outgo and the balance sheet could stretch due to equity
funding in the subsidiary, we believe most of the negatives seem to be
priced in the current market price. At the CMP, the stock is trading at 3.7x
FY13E adjusted P/E and 0.5x FY13 P/BV. We maintain our  BUY
recommendation on the stock with a price target of | 74 per share based
on SOTP valuation methodology and time horizon of 24 months.

NCC – No near-term relief in sight ::RBS

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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.

NCC- Operationally in line 􀂃 􀂃 BNP Paribas

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Operationally in line
􀂃 Revenue, EBITDA were essentially in line with our estimates
􀂃 EBITDA margin of 10.2% was 40bps higher than our estimate
􀂃 Interest cost increased 118% y-y, net profit 19% below estimate
􀂃 We will revisit estimates after incorporating 1QFY12 results
1QFY12 results
NCC reported in-line revenue and
EBITDA in 1QFY12. Revenue increased
5% y-y to INR11.4b. EBITDA was flat y-y
at INR1.2b. EBITDA margin expanded
40bps, due to a lower contribution from
road projects (typically have lower
margins). However, interest costs
increased 118% y-y and were 16% higher
than our estimate. Consequently, net
profit of INR233m was down 44% y-y and
19% below our estimate. The buildings
and housing segment was the largest
contributor to revenue with a 39% share.
Outlook
NCC guided to FY12 revenue of INR72b/ INR59b on a consolidated/
standalone basis. Management expects EBITDA margin to be sustainable
in the 9.5-10.0% range for the full year. Debt for the Krishnapatnam
power project is likely to be tied up in the next 1-2 quarters; the project
requires INR2.0b of further equity infusion (NCC’s portion). The Western
UP Tollway road project became operational in April 2011. The
Pondicherry Tindivanam project should start operations by September
2011. Management indicated that the targeted order inflow for FY12 is
around INR90b.
Valuation
We will revisit our SOTP-based TP of INR133 after incorporating the
1QFY12 result. Our TP includes standalone valuation at INR96/share,
based on 6.5x one-year forward NTM EBITDA (10x implied one-year
forward NTM EPS). Our multiple is at a 10% discount to NCC’s 10-year
historical mean multiple. Power projects contribute INR2/share, based on
1.0x estimated equity investment. Real-estate investments are valued at
0.5x invested equity to arrive at INR13/share contribution. The highway
BOT projects contribute INR22. Risks to our TP include execution risk,
inflationary risk to margins due to raw material price increase, execution
risk in road assets, and interest rate risk.

NCC - 1Q12 results in line; pick-up in ordering activity key to growth ahead::Credit Suisse,

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● NCC’s 1Q12 results were in line with our estimates. Interest
expenses were up 121% YoY, led by the rising cost of borrowings
(now at 10.75% and expected to increase further) and increasing
working capital cycle (increased to 182 days, of which working
capital cycle for core construction is of 145 days).
● But order inflow during the quarter at Rs13.6 bn (declined 23% YoY)
was disappointing, resulting in almost flat order book YoY at Rs162
bn. NCC has guided to the order inflow of Rs90 bn, standalone sales
of Rs59 bn, consolidated sales of Rs72 bn, capex of Rs1 bn and
equity investments in infra projects at Rs2.5 bn in FY12.
● We cut our earnings by 10% and 17% for FY12 and FY13,
respectively, on deteriorating order inflows, high working capital
cycle and the rising cost of interest. Consequently, we cut our
target price by 11%, to Rs128. Though, we expect the operating
environment to remain tough for most construction companies
over the next few quarters, we believe the stocks are now trading
at attractive valuations. We thus maintain our OUTPERFORM
rating for NCC.


In-line 1Q12 results
NCC’s 1Q12 results were in line with our estimates. Although sales at
11.4 bn (5% YoY growth) came in 7% below our estimates, an 82 bp
higher-than-expected operating margin led to in-line results.
Disappointment in sales growth was mainly driven by lower-thanexpected
order inflow during the quarter at Rs13.6 bn (declined 23%
YoY). Order book at Rs162 bn was almost flat YoY. Consolidated PBT
at 313 mn was below expectations marginally led by Rs36 mn of
losses at its Western UP toll way and annuity road projects. However,
toll collections have been increasing as expected. As per the company,
Bangalore elevated toll road project that earned Rs1.4 mn/day when
commissioned has now started to earn toll of Rs2.1 mn/day and is
expected to reach the target toll collection of Rs2.5 mn/ day soon.
Western UP toll project is earning toll of Rs1.8mn/day, but is expected
to improve on the full commissioning of the project. Pondicherry
Tindivanam is now at an advanced stage of completion. However, its
100MW Himachal Sorang hydro power project is further delayed by
six months and is expected to commission by March 2012. The
company plans to enter into a power sales contract for this project
versus the plans of merchant sales earlier.


NCC to face fuel issues for 1.32GW Krishnapatnam project
NCC is currently implementing a 1.32GW domestic coal based
Krishnapatnam power project. The total cost of the project is Rs7.1 bn,
expected to be funded in a debt:equity mix of 75:25. NCC owns 55%
of the project. NCC states that the entire debt tie-up of Rs53 bn has
now been completed and expects to announce financial closure soon.
However, as per lenders’ criteria, the project is required to infuse 35%
of the equity upfront (before loan disbursements). NCC has already
infused Rs1.75 bn of equity and needs to invest a further about Rs2
bn in FY12 for its stake in the project. NCC is currently evaluating for
PE funding for this project as well as a partner for its future infra
projects. As per NCC, its power sales contract with Karnataka SEB
(exposing it to risk from project delays), has now been cancelled and it
has received its bank guarantees. NCC plans to participate in fresh
bids to contract power sales from this project and has currently
submitted a bid to supply 0.5GW to Andhra Pradesh for Rs3.71/kwh
levelised tariff.
However, given rising domestic coal deficits, we expect issues with
the project’s fuel security. NCC has acquired a coal block in Indonesia
with reserves of 15 mmt, and capacity of 1.5 mmtpa of coal production.
We expect 6 mmtpa of coal requirement for the project and with
domestic coal unlikely to meet over 60% of coal needs, we believe
NCC still needs to tie up its fuel needs for the project. Besides, coal
block acquired in Indonesia would contribute towards meeting coal
needs for only 10 years, exposing the company to fuel risk thereafter.
NCC is looking to secure long-term imported coal contracts/ acquire
further coal blocks, but that would require substantial capex.