NCC shares gain over 3% as PhillipCapital sees 68% upside

The brokerage said company's current orderbook of Rs 32,900 crore (3.4x book-to-sales) provides high revenue visibility.

NCC shares rallied 3.4 percent in morning on Monday after global investment firm PhillipCapital has maintained buy call on the stock with a target price of Rs 145, implying nearly 68 percent potential upside.

The stock has corrected significantly over the last year (YTD, down 36 percent) – and is trading at FY20 P/E of 8x – a discount to peers (average 10x).

The research house said with a strong and diversified orderbook (3.4x book-to-sales) and balance sheet (0.3x debt:equity); topline and earnings CAGR of 35 percent and 52 percent respectively, over FY18-20, it does not see a better rerating candidate in the infrastructure space, than NCC.

It continued to value NCC at 13x FY20 P/E – discount to peers like PNC and Ahluwalia.

NCC has delivered stupendous results in the first two quarters in FY19. Its first half FY19 topline of Rs 5,500 crore (+65 percent YoY) places it well within reach to meet, and perhaps exceed, its FY19 revenue guidance of Rs 11,000 crore (+45 percent YoY) – a number which seemed improbable at the beginning of the year, the brokerage house said.

Its margins have expanded by 270bps yoy in first half of FY19 – and the management guidance of 11.0-11.5 percent EBITDA margins now appear easily achievable, it feels.

At the same time, the interest expense has remained stable at Q4FY18 levels, despite the debt increasing due to strong execution.

"Eventually, all aspects of the first half of FY19 results have only reinforced our conviction on the superior execution capabilities of the company," PhillipCapital said.

In the environment where there was muted order inflow for most companies in FY19, NCC has amassed order of around Rs 10,000 crore already, and looks well set to beat its guidance of Rs 14,000 crore of order inflow, the research house said.

NCC's size and presence across the infrastructure space, has helped its grab large orders in buildings, irrigation and roads segments.

The brokerage said company's current orderbook of Rs 32,900 crore (3.4x book-to-sales) provides high revenue visibility.

NCC's subsidiaries (Middle East-ME, Infra, real estate) have historically been dragging its consolidated performance, significantly below the standalone level. Losses in Al-Batinah highway, other projects in Middle-East and in infra subsidiaries, have led to lower consolidated PAT, and reducing overall ROCEs.

However, with the completion of the ME projects, and the company deciding to shut down its ME business, has led to significant revamp in its subsidiary performance YTD, PhillipCapital said.

As compared to subsidiary losses of Rs 250 / 150 crore in FY17/18, NCC has reported subsidiary losses of only Rs 4.6 crore in first half of FY19 – leading to likelihood of much superior profitability at the consolidated level in FY19, inline with the profitability at standalone level, the brokerage house believes.

It said company's effort to divest majority of its land parcels should lead to further cash accrual, and freeing up of locked capital in subsidiaries.

At 10:09 hours IST, the stock was quoting at Rs 88.20, up Rs 1.70, or 1.97 percent on the BSE.

FOR 2 DAYS FREE TRIAL GIVE ONE MISSED CALL ON 9644405056 OR CLICK ON >> Option Trading Tips. SO WHAT ARE YOU WAITING FOR? HURRY UP! SUBSCRIBE US!