Nagarjuna Constructions: ‘Buy’ with TP of Rs 118

By: | Updated: December 7, 2018 5:55 AM

Debt declined Rs 1.4bn sequentially due to working capital improvement.

Thus, we are raising FY19E earnings by 15%.

Nagarjuna Construction (NCC) delivered spectacular Q2FY19 results with revenue and adjusted PAT surging 139% YoY and 118% YoY, respectively. H1FY19 order intake of ~Rs 84bn implies that the company is on track to beat its FY19 order-accretion guidance of `140bn (refer to Hyderabad diaries: Opportunity in adversity). Debt declined Rs 1.4bn 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 `118.
Top line soared 139% YoY in Q2FY19. While IND-AS adoption boosted revenue by ~`1bn each in Q1FY19 and Q2FY19, execution remained robust even after this adjustment. EBITDA margin rose 220bp YoY to 11.8%; adjusting for the `475 m provision in overseas subsidiaries, profits surged 118% YoY to at `1.7bn (topping our estimate of `1bn). Debt too surprised, declining sequentially to `16.6 bn led by improvement in the working capital cycle. Management is confident of achieving FY19 revenue guidance of `110bn; EBITDA margin guidance stands at 11.3%.

The company bagged `84bn worth of orders in H1FY19; after removing the slow-moving orders of ~`10bn, it ended Q2FY19 with an order book of `330bn (book-to-bill of 3.2x). In October too, the company won ~`13.5bn worth of orders, taking the YTD order intake to ~`97.5bn. All in all, the company remains on track to surpass FY19 order-wins guidance of `140bn.
Improving revenue visibility, strong execution and healthy balance sheet (debt:equity at 0.4x) are the key positives.

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