NCC - 2QFY2016 Result Update - Angel Broking

For 2QFY2016, NCC reported a favorable standalone earnings performance, reflecting better than expected execution, and lower yoy interest expenses owing to decline in debt.

On the top-line front, NCC (standalone) reported a 6.6% yoy decline to Rs. 2,096cr. On a sequential basis, the top-line grew 21.7%. Stronger execution seen across Water, Environment & Railways (WER) and the Buildings and Roads (B&R) segment, and sale of a land parcel (worth Rs. 29.9cr), contributed to the better-than expected 2QFY2016 revenues.

NCC reported a 72bp yoy EBITDA margin improvement to 8.8%, owing to 21.3% yoy decline in raw material expenses and real estate transaction. Expansion in EBITDA margin on yoy basis coupled with lower yoy interest expenses led to PAT coming in at Rs. 55cr for the quarter as against Rs. 22cr in 2QFY2015.

NCC's outstanding order book as of 2QFY2016 stands at Rs. 17,487cr (exc. international business, order book to LTM sales ratio stands at 1.8x), indicating a 14.3% yoy decline.

Outlook and valuation: NCC's stock price has run-up by 36.9% in the last 12 months, mainly owing to the balance sheet de-leveraging exercise pursued by the company. NCC aims to repay debt by around Rs. 200-300cr through proceeds of stake sale. However stretched working capital cycle will likely inhibit the company from cutting down its debt in FY2016E. We are of the view that the next leg of re-rating in the stock would come from improvement in the EBITDA margin, and further compression in working capital cycle. Since we estimate this to happen in FY2017E only, we assign a 14.0x P/E multiple to the standalone EPC business, which in-turn has restricted the target price at Rs. 90/share. Given that all positives are captured in the current market price, we assign a Neutral rating on the stock.

Shares of NCC Limited was last trading in BSE at Rs.78.7 as compared to the previous close of Rs. 77.4. The total number of shares traded during the day was 638653 in over 3436 trades.

The stock hit an intraday high of Rs. 79.5 and intraday low of 76.8. The net turnover during the day was Rs. 49866645.

Source : Equity Bulls

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