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