Stock Market Result Update on Nagarjuna Construction for 2QFY2012 with a Buy recommendation and a Target Price of `75 (12 months).
NCCposted a poor performance for 2QFY2012, below our and street expectations. Owing to the company’s poor performance in 1HFY2012 and as no respite is expected from the macro challenges faced by the company in the medium term, we are revising our estimates downwards for FY2012 and FY2013. However, owing to its attractive valuations and diversified order book with exposure to most growth sectors, we maintain our Buy view on NCC.
Dismal performance on all fronts: For 2QFY2012, NCC reported a 9.2% yoy decline in its top line to `1,090cr, which was below our/street expectations of `1,261cr/`1,271cr. EBITDA margin for the quarter came in at 9.5%, lower than our estimate of 10.3%. Interest cost during the quarter came in at `70.9cr a yoy/qoq jump of 89.4%/10.9% which above our estimates. The company’s bottom line came in at `11.4cr, registering a yoy decline of 75.2%, owing to subdued top-line growth and escalating interest costs, and much lower than our/street estimate of `29.8cr/`29.1cr.
Outlook and valuation: The current outstanding order book of NCC stands at `16,570cr (3.3x FY2011 revenue), with order inflow of `1,746cr for 2QFY2012. Going ahead, we believe the NCC’s order inflow would be driven by EPC work of its own power plant. However, earnings would continue to reel under pressure due to a soaring interest costs owing to high interest rate regime and increased debt levels – to fund its investments in the captive projects (read power project/road BOT project) and working capital requirements. At the current price, the stockis trading at attractive valuations (4.4x its FY2013E earnings adjusted for its investments and subsidiaries) and at 0.5x FY2013E on P/BV basis (standalone). Our revised target price of `75 (earlier `82) is arrived on SOTP basis and implies an upside of ~38.0% from current levels hence we maintain Buy on the stock.
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