For 2QFY2016, NCC reported a favorable standalone earnings performance,
reflecting better than expected execution, and lower yoy interest expenses owing to
decline in debt.
On the top-line front, NCC (standalone) reported a 6.6% yoy decline to Rs2,096cr.
On a sequential basis, the top-line grew 21.7%. Stronger execution seen across
Water, Environment & Railways (WER) and the Buildings and Roads (B&R)
segment, and sale of a land parcel (worth Rs29.9cr), contributed to the better-thanexpected
2QFY2016 revenues.
NCC reported a 72bp yoy EBITDA margin improvement to 8.8%, owing to 21.3%
yoy decline in raw material expenses and real estate transaction. Expansion in
EBITDA margin on yoy basis coupled with lower yoy interest expenses led to PAT
coming in at Rs55cr for the quarter as against Rs22cr in 2QFY2015.
NCC’s outstanding order book as of 2QFY2016 stands at Rs17,487cr (exc.
international business, order book to LTM sales ratio stands at 1.8x), indicating a
14.3% yoy decline.
Outlook and valuation: NCC’s stock price has run-up by 36.9% in the last
12 months, mainly owing to the balance sheet de-leveraging exercise pursued by
the company. NCC aims to repay debt by around Rs200-300cr through proceeds
of stake sale. However stretched working capital cycle will likely inhibit the
company from cutting down its debt in FY2016E. We are of the view that the next
leg of re-rating in the stock would come from improvement in the EBITDA margin,
and further compression in working capital cycle. Since we estimate this to happen
in FY2017E only, we assign a 14.0x P/E multiple to the standalone EPC business,
which in-turn has restricted the target price at Rs90/share. Given that all positives
are captured in the current market price, we assign a Neutral rating on the stock.
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