Companies in cyclical industries usually trade at their historical multiple averages. NCC’s long term P/E has been in 12-14 range. Current p/e is 20 which might be a little lower on a forward earning basis (assuming sector is still in uptrend). So to me NCC looks priced to perfection with respect to its historical valuations.
Now one might get tempted to compare multiples with peer group but one needs to account for different businesses that peer group companies might be in. A pureplay road construction company will get lower multiple than the one (e.g. IRB) that also does BOT (high margin annuity business).
If there were trigger for rerating of NCC’s multiple it might come from one or both of the following.
1- Whole sector getting rerated due to external triggers (e.g. government capex trends, improved payment schedules from state agencies such as NHAI etc)
2- Significant expansion in company’s margins due to either better efficiency in operational execution, favorable revenue mix or better receivables.
Without that I don’t see current multiples rising any further. (Of course not accounting for whims of bull markets which can often make mockery of valuations.)
| Subscribe To Our Free Newsletter |
