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NCC 3QFY2014 performance highlights and results update

February 14, 2014, Friday, 07:22 GMT | 02:22 EST | 11:52 IST | 14:22 SGT
Contributed by Angel Broking

NCC posted a poor set of numbers for 3QFY2014, which are below our and street expectations on the profitability front. This is primarily due to lower-than-expected operational performance and high interest expense during the quarter. The company secured an order worth Rs.5,865cr in 9MFY2014 taking the current outstanding order book to Rs.19,612cr (3.3x trailing revenues).

Higher interest cost dents profitability: On the top-line front, NCC reported a growth of 25.7% yoy to Rs.1,489cr, which is in line with our estimate of Rs.1,451cr. This is mainly due to pick up in execution in its under construction projects during the quarter. On the operating front, the company’s EBITDA margin stood at 6.2% (down 134bp sequentially) and was below our estimate of 8.0%. Interest cost came in at Rs.117.9cr, indicating a growth of 19.2% yoy. At the bottom-line level, the company reported a loss of Rs.7cr (our estimate was of a profit of Rs.11cr) for the quarter against a profit of Rs.11cr in 3QFY2013. This was mainly due to lower-thanexpected operating performance and high interest expense during the quarter.

Outlook and valuation: During the quarter, the company has reached a definite agreement with Sembcrop Utilities Pte ltd for 45% stake sale in Nelcast Power Project. We believe this is a step in the right direction and would help the company reduce its debt going forward. The company is also in process of reducing its debt to Rs.2,000cr by March 2015 through stake sale in two of its road BOT projects, continued monetization of its land bank and completion of stake sale in the Himachal Sorang project and Nelcast Power Project. The Management has given a revenue guidance of Rs.6,600cr for the full year. However, based on 9MFY2014’s performance, we believe the company will not meet its guidance on the revenue front. We expect the company to report revenues of Rs.6,044cr and Rs.6,533cr for FY2014 and FY2015 respectively. The stock is currently trading at a PE of 4.4x and 3.2x (excluding subsidiaries’ valuation) our FY2014E and FY2015E EPS respectively. We continue to maintain our Buy rating on the stock with a target price of Rs.30.