Amravati Capital City project to boost incremental order opportunity
About the stock: NCC is one of the leading construction companies with presence across varied verticals of infrastructure space such as buildings, roads, water, mining and electrical. Standalone order book stood at ₹ 51,483 crore as of FY24. • Well-diversified order backlog, robust execution capabilities, and strong focus on working capital to be key over next few years.
Investment Rationale:
• Revival of Amravati Capital City could drive incremental order opportunity: The formation of the new government in Andhra Pradesh is likely to drive revival of the Amravati Capital City project. NCC could be presented with a new ordering opportunity as we note that it previously had orders to tune of ~₹ 6600 crore from Amravati in 2017-18, large part of which got cancelled in 2019. Furthermore, revival of the Polavaram Irrigation Project, could also further drive ordering opportunity in the water segment for NCC.
• Poised for a healthy execution ahead with strong order book: NCC has standalone order book of ₹ 51,483 crore, (~2.8x book to bill ratio), largely aided by ₹ 18,439 crore (up 37% YoY) worth of orders secured in FY24 on standalone basis. On consolidated basis, order book stood at ₹ 57,536 crore, driven by order inflows of ₹ 27283 crore. The company has guided for an order booking of about ~₹ 20,000 – 22,000 crore, with ordering likely to be impacted in 1HFY25 owing to elections. The topline growth guidance is ~15% for FY25. Given the robust orderbook, we expect healthy revenue CAGR of ~15% over FY24-26E to ₹ 24209 crore.
• Strong earnings growth momentum & higher return ratios ahead: The EBITDA margin guidance is 9.5% -10% for FY25, amidst the competitive bidding scenario, and with company focussing on revenue growth momentum in FY25 over margins. With healthy execution, we bake in EBITDA margins at 10%/10.5% in FY25/FY26 vs. 9% in FY24 (~10% on adjusted basis). Healthy topline growth coupled with stable finance cost is likely to drive ~27.9% earnings CAGR over FY24-26E. The strong earnings momentum will translate into improvement in return ratios, with RoEs likely to expand to 15.4% in FY26 vs. 12.3% 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, and improving balance sheet strength, it is poised for a healthy growth ahead.
• We value NCC at ₹ 395, at 18x FY26 P/E, and maintain our BUY rating on the stock
Leave a Reply