Nagarjuna Construction: Operating margins in focus

Updated: Mar 30 2008, 04:34am hrs
A robust order book, consistent operating margins, and diversification in new verticals alongwith the growth in the infrastructure sector seem to be working in the favour of Nagarjuna Construction Company as growth drivers. The company currently has an order book of Rs 10,000 crore, while total inflows during the year so far have been at Rs 6000 crore. It is estimated that 46.4% revenues of the company finds its source in the new order book.

The construction company has been also charting new territories to insulate itself from a single sector exposure. It is currently diversified into new verticals like irrigation (forms 26% of the order book), roads (24%), power (transmission and distribution, 6%), buildings (22%), oil & gas, and balance of plant. And in future, this diversification into newer verticals is expected to serve the company in terms of encouraging numbers as regards earnings. Also, the presence of private equity player Blackstone in the company would stand the company in good stead.

However, on account of the high estimated order intake during FY08, the construction companys operating profit margins would remain under pressure as initial costs on new projects would be high and over a period of time would cause the companys margins to remain subdued during that period.

The companys higher depreciation costs and interest charges would impact the companys operational performance. NCC is planning to put up capital for its core construction business as well as BOT ventures and real estate.

This would bring about a necessary cushion to the interest costs, considering the fact that the company is planning to put up capital and not debt. Its operating profit margin and net profit margin for the December were around 11% and 5 % respectively. The company, as of December 2007, had sales of around Rs 779 crore and PAT of around Rs 39 crore.

(Contributed by Rajesh Naidu)