BUY NCC : AnandRathi Institutional Research

NCC - Lower interest cost drives profitability; Buy with a target price of Rs 120.

NCC reported strong Q2 FY16 bottom-line growth, aided by a better operational performance, the sale of land and lower interest cost. We estimate 16%/48% CAGRs in revenue/PAT over FY16-18 following the healthy order inflows and lower leverage. We maintain our Buy call, with a sum-of-parts target of Rs 120

Revenue growth dips due to high base: Q2 FY16 revenue dipped 6.6% yoy (though up 21.7% qoq) due to the greater proportion of revenue from its power project in Q2 FY15. Following the strong order inflow in FY16, we expect revenue over FY16-18 to come at a 16% CAGR.

On asset sales, EBITDA margin expands: The EBITDA margin rose 70bps yoy to 8.8% (8.1% a year ago, 9.2% the previous quarter), supported by the high revenue growth and sale of some of its real-estate assets. Management expects to hold to an EBITDA margin of ~8.75-9% (incl. real estate land sale) in FY16/17.

Profitability soars: Net profit came at Rs. 550m, rocketing 148% and driven by superior execution and a steep drop in interest cost (17% down yoy) aided by reduced debt and a revised credit rating (to BBB+). We expect a similar reduction in H2 FY16.

Order-book steady: The order book (on 31st Sep'15) was Rs. 174.9bn, backed by orders of ~Rs. 22.9bn in H1 Y16. Besides, last month orders of ~Rs. 20.6bn were bagged, taking the order book to Rs. 195.45bn (2.3x TTM revenue). For FY16 NCC is aiming at fresh orders of ~Rs. 80bn. It faces less competition in bidding for building projects than for roads, and is geared up for fresh orders.

Valuations: At the ruling market price, the stock trades at a core PE of 7.2x FY18e earnings. We have a Buy rating on it, with a sum-of-parts price target of Rs. 120 based on 1x book value of all assets (Rs. 23/share) and Rs. 97 for the core business at a PE of 12x FY18e EPS. Risks. Rise in interest rates, slowdown in order inflows.

Shares of NCC Limited was last trading in BSE at Rs.78.65 as compared to the previous close of Rs. 78.2. The total number of shares traded during the day was 534776 in over 2513 trades.

The stock hit an intraday high of Rs. 79.25 and intraday low of 77.4. The net turnover during the day was Rs. 41912329.

Source : Equity Bulls

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