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Nagarjuna Construction 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Nagarjuna Construction Company (NCC) posted a poor set of numbers for 3QFY2012, below our and street expectations. Owing to the company’s poor performance in 3QFY2012, we are revising our estimates downwards for FY2012. Further, on account of the recent run-up in the stock price, we recommend Neutral on the stock.

Decline in revenue, abysmal EBITDAM and interest burden lead to loss: For 3QFY2012, NCC’s top line declined by 5.4% yoy to Rs.1,264cr, which was marginally above our expectation of Rs.1,215cr (Consensus: Rs.1,271cr). On the EBITDAM front, the company’s margin stood at shocking 6.1% (10.3%), registering a dip of 350bp yoy and lower than our estimate of 9.5% due to one-time provisioning (~Rs.15cr) and cost/time overruns in few projects. Interest cost came in at Rs.69.4cr, registering a yoy jump of 58.3% but a decline of 2.2% on a sequential basis. On the bottom-line front, NCC reported loss of Rs.9.5cr in 3QFY2012 vs. profit of Rs.40.5cr in 3QFY2011, against our estimate of Rs.14.0cr (Consensus: Rs.26.4cr), manly owing to dismal EBITDAM performance.

Outlook and valuation: The current outstanding order book of NCC stands at Rs.21,990cr (4.3x FY2011 revenue), with order inflow of Rs.9,943cr for 9MFY2012, mainly aided by captive power project (Rs.5,200cr), which is notably pending FC. Further, management has revised its revenue guidance to Rs.5,100cr-5,200cr (our earlier revenue estimates) for FY2012 from Rs.5,700cr-5,800cr, which implies a growth rate of 10.3% yoy for 4QFY2012, which we believe is aggressive. Hence, we are factoring in lower revenue numbers for FY2012 (Rs.4,946cr). Further, earnings would continue to reel under pressure due to muted execution pace, margin under pressure and high interest cost on the back of elevated debt levels. Hence, we recommend Neutral on the stock with a fair value of Rs.58.