Weak Performance! …
About the stock: NCC is one of the leading construction companies with presence across varied verticals such as buildings, roads, water, mining and electrical. Standalone order book is at ₹ 51,834 crore, 2.7x TTM book to bill.
• Well-diversified order backlog, robust execution capabilities, and strong focus on working capital to be key over next few years.
Q3FY25 Performance: NCC reported revenue from operations for Q3 FY25 at ₹4671 crore, down 1.6% YoY given slower pace of execution due to elections and extended rainfall which led to elongated billing cycles. Subsequently, EBITDA reported at ₹409.5 crore was down 14.6% YoY along with margins reported at 8.8% YoY, down 130 bps YoY. PAT was reported at ₹185.4 crore, down 13% YoY given the muted execution.
Investment Rationale:
• Elections led slowdown in Q3; Healthy order book; Execution to pick up in FY26: The company attributed the weak execution to elections and extended rainfall and elongated billing cycle, thereof. Thus, topline growth guidance was revised downward at ~5% (vs 15% earlier) for FY25. We note that the standalone order book is at ₹ 51,834 crore, 2.7x TTM book to bill. The total order inflow for 9M FY25 stood at ₹13600 crore and L1 position for orders worth ₹ 9000-10000 crore. Thus, management has maintained order booking guidance of ~₹ 20,000 – 22,000 crore for FY25. While management has refrained from guiding for FY26, given the robust orderbook and healthy pipeline, we expect healthy revenue CAGR of ~12.7% over FY24-27E to ₹ 26,228 crore, with growth recovery from FY26 onwards
• Net debt surged; Margin guidance pruned: Given the elongated billing cycle, the gross debt, at ₹2415 crore, was up by ₹680 crore QoQ. The company expects the same to reduce as it receives the payments. The EBITDA margin guidance was revised downward to 9.25% (vs 9.5% earlier) given the weak 9MFY25, albeit it indicated improved margins at 9.5% for Q4. We bake in EBITDA margins at 9%/9.4%/9.7% in FY25/FY26/FY27 vs. 9% in FY24.
Rating and Target Price
• NCC is a key beneficiary of the tailwinds in the buildings, roads, water, mining and electrical segments. Given the strong order book visibility, execution is likely to improve ahead.
• We value NCC at ₹ 265 (vs. ₹ 400, earlier), now valuing it at 12x FY27 (vs. 15x, earlier), and maintain our BUY rating on the stock
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