Nagarjuna Construction (NCC) reported 6% y-o-y top-line growth for Q1FY18 to Rs 20.1 billion against estimated Rs 19.8 billion. With EBITDA margin declining ~20bps y-o-y, adjusted PAT at Rs 510 million dipped 2.5% y-o-y.
Nagarjuna Construction (NCC) reported 6% y-o-y top-line growth for Q1FY18 to Rs 20.1 billion against estimated Rs 19.8 billion. With EBITDA margin declining ~20bps y-o-y, adjusted PAT at Rs 510 million dipped 2.5% y-o-y. The big positive was the surge in order intake to ~Rs 60 billion, Rs 92 billion in FY17, which boosted order book. After three consecutive quarters of declining top line, NCC posted 6% y-o-y top-line growth in Q1FY18. Lower interest costs, driven by improved credit rating, resulted in interest costs falling ~8% y-o-y. However, decline in operating margin and other income led to adjusted PAT falling 2.5% y-o-y.
Management has guided for 10% revenue growth and 9% EBITDA margin in FY18. We expect NCC’s interest cost to further decline following improvement in its credit rating. With book-to-bill at 2.1x as at FY17 end, low revenue visibility was the biggest concern for NCC. This issue appears to have been addressed with NCC bagging ~Rs 60 billion orders in Q1FY18, and management has guided for ~Rs 25-30 billion order intake in Q2FY18.
We believe, improvement in revenue visibility, will be a key trigger going ahead. We maintain ‘Buy’ with SoTP-based target price of Rs 121 —Rs 120/share from EPC business (18x FY19E P/E) and balance from BOT projects. NCC’s overall exposure to subsidiaries stood flat sequentially at ~Rs 16.5 billion. Management expects the real estate subsidiary to repay ~Rs 1 billion loan over next couple of quarters from sale of two real estate projects in Kakinada and Bengaluru. The company undertook early billing during the quarter to avoid GST impact following which inventory reduced to ~Rs 13.3 billion while trade receivables increased to ~Rs 19.5 billion.