Nagarjuna Construction's (NCC) Q1FY16 earnings beat our estimates as strong margin improvement and lower tax rate trumpe...
Nagarjuna Construction’s (NCC) Q1FY16 earnings beat our estimates as strong margin improvement and lower tax rate trumped less than expected top line growth. Revenues, at Rs 1,720 crore, were up 16% y-o-y. Ebitda margin improved 190 bps y-o-y to 9.2% (aided by Rs 1,200 crore profit on land sale). Despite the Rs 225 crore sequential increase in debt, this was sufficient to enable NCC to post PAT of Rs 4,120 crore. While order intake over past 2 quarters has been on the lower side leading to order book declining to Rs 18,700 crore (2x TTM revenue), we believe NCC’s long term prospects remain bright, driven by low leverage and potential large infra development opportunity in Andhra Pradesh/Telangana.
Seasonal increase in working capital requirement led to debt increasing to Rs 2,220 crore. The company is targeting Rs 400 crore of asset sale in FY16 and expects to end the year with Rs 1,800 crore debt.
Expansion in margin and improving balance sheet underpin our bullish stance on NCC. Falling competition and NCC’s diversified presence will enable it to benefit from upcoming opportunities in the EPC space. Maintain ‘buy’ and our SOTP-based target price of Rs 114.