Nagarjuna Construction (NCC) delivered spectacular Q2FY19 results with revenue and adjusted PAT surging 139% Y-o-Y and 118% Y-o-Y, respectively. H1FY19 order intake of Rs 8,400 crore implies that the company is on track to beat its FY19 order-accretion guidance of Rs 14,000 crore Debt declined by Rs 140 crore sequentially due to working capital improvement. We expect NCC to maintain its robust performance going ahead aided by robust revenue visibility (book-to-bill of 3.2x), healthy execution and improving working capital cycle. Thus, we are raising FY19E earnings by 15%. Maintain ‘buy’ with an
SoTP-based target price of Rs 118.
Top line soared 139% Y-o-Y in Q2FY19.EBITDA margin rose 220 bps Y-o-Y to 11.8%; adjusting for the Rs 475 million provision in overseas subsidiaries, profits surged 118% Y-o-Y to Rs 170 crore (topping our estimate of Rs 100 crore). Debt too surprised, declining sequentially to Rs 1,660 crore, led by improvement in the working capital cycle. Management is confident of achieving FY19 revenue guidance of -Rs 11,000 crore; EBITDA margin guidance stands at 11.3%.
The company bagged Rs 84-billion worth of orders in H1FY19; after removing the slow-moving orders of Rs 10 billion, it ended Q2FY19 with an order book of Rs 330 billion (book-to-bill of 3.2x).
Improving revenue visibility, strong execution and healthy balance sheet (debt:equity at 0.4x) are the key positives. Factoring in its robust H1FY19 performance, we are raising FY19 earnings by 15%. We believe continued order-wins and execution trajectory are the key triggers going ahead. NCC’s overall exposure to subsidiaries stands at Rs 15.8 bn. The company is still facing issues pertaing to GST adjustment on its projects in Andhra Pradesh/Telangana, which has stalled INR1–1.5bn worth of payments. The company is not facing any significant delays in payments on its two projects in Andhra – the affordable housing projects under PMAY and the capital city development projects in Amravathi.