18 June 2014
Nagarjuna Construction
spotlight
The Idea Junction
Stock Info
Bloomberg
NJCC IN
CMP (INR)
71
Equity Shares (m)
256.6
M.Cap. (INR b)/(USD b)
18.3/0.3
52-Week Range (INR)
89/17
1,6,12 Rel. Perf. (%)
-1/132/115
Operational performance to improve
Asset monetization a key trigger
Order Intake up meaningfully; expect sharp improvement in operational
performance
During FY14, NJCC's order intake increased meaningfully to INR93b (up 121%
YoY). The book to Bill ratio stands at 3.4x vs the previous cyclical high of 4.4x
in mid FY12. Also, new orders entail superior margins given the limited
competition (as bidding condition in several contracts prohibit companies in
CDR from participating) leading to an improvement in the pricing power in
recent bids.
Thus, management expects margins to improve to more normative levels of
8% in FY15, implying an improvement of 138bp YoY. Given that the order intake
in FY14 was largely equally split (with 1H at INR47b, 51% share), we expect
possibility of ~15% revenue growth in FY15 (vs 6% revenue CAGR during FY1014); and is at the upper end of the management expectations of 10-15% growth
possibility in FY15.
Financials & Valuation (INR b)
Y/E March
2014 2015E* 2016E*
Revenues
61.2
67.5
75.6
% YoY
6.9
10.4
12.0
EBIDTA
4.0
5.2
6.1
Margins, %
6.6
7.8
8.1
PBT
0.0
Tax Rate %
Adj Net Profit -0.1
1.1
2.0
35.0
35.0
0.7
1.3
% YoY
EPS (INR/sh)
77.8
-0.2
PER (x)
2.8
4.9
25.6
14.4
P/BV (x)
0.7
0.7
0.7
DER (x)
0.9
0.8
0.7
Standalone nos; * Consensus est.
Shareholding pattern (%)
Correcting the balance sheet structure an important priority
During FY14, NJCC's standalone debt stood at INR24.7b (vs INR21.1b YoY); and
the management expects to end FY15 debt at less than INR20b. The debt
reduction is intended through a combination of asset monetization and fund
raising (rights issue, board approval for upto INR6.5b).
Asset monetization strategy involves: NCC Power (INR4.7b in next six months),
Real Estate (INR4b over 4 years) and BOT assets (Western UP Tollway, tolls
INR1b and Bangalore Elevated Tollway, tolls INR363m); investments in both
these projects stand at ~INR2.7b.
As on
Mar-14 Dec-13 Mar-13
Promoter
20.4
20.4
20.3
Dom. Inst
8.8
9.6
10.4
Foreign
36.5
35.5
39.7
Others
34.3
34.5
29.7
Stock performance (1 year)
Valuations attractive; debt reduction key re-rating trigger
At the CMP, NJCC quotes at PER of 25.6x FY15E / 14.4x FY16E and P/BV of 0.7x.
During the FY05-FY08 economic upcycle, NJCC traded at an average PER of 28x
and a peak PER of 47x. Asset monetization and Debt reduction are important
re-rating triggers.
Spotlight is a new offering from the Research team at Motilal Oswal. While our Coverage Universe
is a wide representation of investment opportunities in India, there are many emerging names in the
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Investors are advised to refer through disclosures made at the end of the Research Report.
RED: Caution
AMBER: In transition
GREEN: Interesting
1
Spotlight | NCC
Order Intake up meaningfully; expect sharp improvement in
operational performance
Order Intake (INR b): FY14 split equally between 1H/2H
Order Book Trend (INR b)
205
196
188
186
1QFY13
2QFY13
3QFY13
4QFY13
Order Book Composition, FY14
Electrical
5%
International
7%
Buildings,
Roads, Oil
and Gas
37%
Water,
Environment
, Railways
25%
Source: Company, MOSL
18 June 2014
Source: Company, MOSL
Order Intake Composition, FY14
Power
18%
Metals
1%
Irrigation
5%
4QFY14
3QFY12
Source: Company, MOSL
Mining
2%
210
202
4QFY12
166
2QFY12
1QFY14
162
4QFY13
4QFY14
3QFY13
11
3QFY14
10
2QFY14
10
2QFY13
1QFY13
1QFY12
33
20
11
220
37
196
Order Book
Order Intake
3QFY14
202
2QFY14
During FY14, NJCCs order intake increased meaningfully by 121% YoY and stood
at INR93b; this compares with the initial expectations of INR66b. The
management stated that there is an improvement in the ordering activity
primarily led by state government capex.
Even the trends in Order Tracker suggests that on a TTM basis as at June 2014,
the project awards stood at INR2t, up 29% YoY; and have gradually inched up
from low levels of INR1.4t in June 2013. Mid-sized players (excluding L&T) have
reported a meaningful increase in project wins at INR1.3t, up 73% YoY.
Given that the order intake in FY14 was largely equally split (with 1H at INR47b,
51% share), we expect possibility of ~15% revenue growth in FY15. This is at the
upper end of the management expectations of 10-15% growth possibility in
FY15.
Margins during FY14 declined 146bps to 6.6%; however the decline is given onetime adjustment on past receivables and poor margin orders being executed.
New orders entail superior margins given the limited competition (as bidding
condition in several contracts prohibit companies in CDR from participating)
leading to improved pricing power in recent bids. Thus management expects
margins to improve to more normative levels of 8% in FY15.
181
1QFY14
Please refer to our Order
Tracker report released on
12 June 2014
Metals
1%
Electrical
6%
Water,
Environment,
Railways
38%
Power
4%
International
5%
Buildings,
Roads, Oil
and Gas
46%
Source: Company, MOSL
Spotlight | NCC
200
Order Intake (INR B, ttm)
% YoY
150
200%
150%
100%
100
50%
0%
50
-50%
4QFY14
2QFY14
4QFY13
2QFY13
4QFY12
2QFY12
4QFY11
2QFY11
4QFY10
2QFY10
4QFY09
2QFY09
4QFY08
2QFY08
-100%
4QFY07
Order book has stabilized, BTB at 3.4x (vs peak levels of 4.4x
in mid FY12)
250
Order book (Rs b)
BTB (x), Standalone
5.0
200
4.0
150
3.0
100
2.0
50
1.0
0.0
2QFY06
4QFY06
2QFY07
4QFY07
2QFY08
4QFY08
2QFY09
4QFY09
2QFY10
4QFY10
2QFY11
4QFY11
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
NJCCs order intake has bounced back from lows, still down
45% from FY12 peak levels
Source: Company, MOSL
Source: Company, MOSL
Order Tracker suggests improved intake largely led by mid-sized players
Mid-Sized players witness meaningful intake (INR b)
Order Intake (INR B) up 29% YoY on TTM basis
% YoY
45
25
5
-15
-35
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
2,205
2,264
2,052
1,955
1,875
1,818
1,762
1,585
1,496
1,510
1,474
1,435
1,496
1,527
1,560
1,620
1,661
1,623
1,649
1,873
1,989
1,918
TTM Orders (INR b)
Source: Company, MOSL
18 June 2014
Source: Company, MOSL
Spotlight | NCC
Correcting the balance sheet structure an important priority
Interest cost (INR M); Interest (% of EBIT, TTM) at 148%
110.9%
147.8%
1,131
4QFY13
1,435
989
3QFY13
4QFY14
1,019
2QFY13
118.7%
931
1QFY13
1,179
984
4QFY12
3QFY14
694
3QFY12
115.7%
709
2QFY12
1,074
120.6%
640
1QFY12
Source: Company, MOSL
2QFY14
95.8%
113.8%
47.6%
58.7%
105.9%
40.1%
23,003
4QFY14
4QFY11 575
24,457
2QFY14
4QFY13
20,302
24,429
2QFY13
20,305
4QFY12
25,192
2QFY12
28,907
4QFY11
19,443
2QFY11
Interest (% of EBIT)
972
Interest Cost
Net Debt
1QFY14
Net Debt has remained at elevated levels (INR M)
107.4%
During FY14, NJCCs standalone debt stood at INR24.7b (vs INR21.1b YoY); and
the management expects end FY15 debt at less than INR20b. The debt reduction
is intended through a combination of asset monetization and fund raising (rights
issue). Importantly, the Board has also taken a decision not to participate for
any BOT projects in future, and will just bid for EPC contracts.
NJCC has received the Board approval for rights issue (upto INR6.5b). The intent
is to pay-off all the short-term loans and also NCDs (of INR6.2b) and thus
borrowings will be restricted to working capital limits (INR18b, March 2014).
75.2%
Source: Company, MOSL
Interest cost as % of EBIDTA at elevated levels (ttm); correcting the capital structure is an
important priority
Interest /EBITDA (ttm, %)
4QFY14
2QFY14
4QFY13
2QFY13
4QFY12
2QFY12
4QFY11
2QFY11
4QFY10
2QFY10
4QFY09
2QFY09
4QFY08
2QFY08
4QFY07
2QFY07
185
166
504 20
145 20
233 21
167 20
174 20
239 22
275 22
238 23
213
26
346
28
322
29
306
29
348
27
293
26
375
26
438
29
575
34
640
41
709
49
694
61
984
76
931
83
1,019
89
989
94
1,131
86
972
89
92
1,074
1,179
95
1,435
115
Interest (INR m)
Source: Company, MOSL
18 June 2014
Spotlight | NCC
Three pronged asset monetization strategy
NCC Power (INR4.7b in next six months): Sembcorp Utilities pte ltd, Singapore
has agreed to purchase the stake in NCC Power Projects for INR8.5b. NJCC
expects to recoup its entire investments of INR5.7b (of which INR1b has already
been received) in the next six months. The key issue is the transfer of coal
linkages to Sembcorp, for which the approval from Coal Ministry has been
pending.
Real Estate (INR4b over 4 years): NCC Urban Infra (the real estate subsidiary)
has outstanding advances of INR4b from NJCC. The management stated that
there has been an understanding that the amount will be repaid over the next
four years (INR1b per annum) through land sales, and also real estate
monetization (for instance of ~250 apartments for Ranchi Games Village,
~INR800-900m), etc. Even during FY14, NCC Urban repaid INR500m of principal
and INR350m of interest.
BOT assets: NCC is also attempting to monetize BOT road assets, including the
Western UP Tollway (FY14 tolls INR1b) and Bangalore Elevated Tollway (FY14
tolls at INR363m). The investments in both these projects by NJCC stand at
~INR2.7b.
Non-Current Investments composition (INR M)
NCC Infra
NCC Urban Infra
NCC Vizag Urban Infra
OB Infra
Nagarjuna Construction, Oman
NCC Infra Holdings, Mauritius
Jubilee Hills Land Mark Projects
Tellapur Techno
Others
Total
FY13
5,846
1,200
500
746
612
1,219
937
848
629
12,536
Details
PPP Projects holding company
RE projects holding company
RE project
BOT Road
Overseas construction
Overseas construction
RE project
RE project
Source: Company, MOSL
18 June 2014
Spotlight | NCC
Valuations attractive; debt reduction key re-rating trigger
At the CMP, NJCC quotes at PER of 25.6x FY15E / 14.4x FY16E and P/BV of 0.7x.
During the FY05-FY08 economic upcycle, NJCC traded at an average PER of 28x and a
peak PER of 47x. Asset monetization and Debt reduction are important re-rating
triggers.
NJCC Standalone Financials (INR m)
Revenues
% YoY
EBIDTA
Margins, %
PBT
Tax
Tax Rate %
Net Profit
Adj Net Profit
EPS (INR/sh)
PER (x)
* Consensus estimates
FY13
57,249
9.0%
4,709
8.2%
977
351
35.9%
626
626
FY14
61,173
6.9%
4,049
6.6%
29
-376
2.4
29.2
-0.2
FY15E*
67,518
10.4%
5,249
7.8%
1,097
384
35.0%
713
713
405
-56
FY16E*
75,636
12.0%
6,147
8.1%
1,950
683
35.0%
1,268
1,268
2.8
4.9
25.6
14.4
Source: Company, MOSL
NJCC: PE band
NJCC: P/BV chart
6.0
P/B (x)
15 Yrs Avg(x)
5 Yrs Avg(x)
10 Yrs Avg(x)
4.0
2.0
1.5
1.1
Jun-14
Apr-13
Feb-12
Dec-10
Nov-09
Sep-08
Jul-07
May-06
Mar-05
Feb-04
Dec-02
Oct-01
Aug-00
Jun-99
0.0
18 June 2014
0.7
0.8
Spotlight | NCC
Please refer to our INDIA
MODI-fied report released
on 5 June 2014
Appendix: Infrastructure development an important priority
The Presidential Address to the joint session of the Parliament post formation of the
new government outlined the key agenda. Railways top the priority list of
infrastructure, with Diamond Quadrilateral and agri-rail network being initiated.
Some of the big bang infrastructure initiatives include capitalizing on the DFC/DMIC
and investment regions development. Other transport solutions including highways,
low cost airports and port-led development would also receive a big push. The
national energy policy would essentially attempt to tap diverse forms of energy,
while urbanization is envisaged as a growth driver with creation of 100 new cities.
Infrastructure and development of cities/towns
Chalk out an ambitious infrastructure development program to be implemented
in next 10 years.
Fast-track, investment friendly and predictable PPP mechanism.
Modernization and revamping railways on top of agenda.
Will launch diamond quadrilateral network of high-speed trains.
Network of freight corridors with specialized Agri-Rail networks for perishable
agricultural products.
Encourage R&D and high level local manufacturing for railway systems.
Will set up world class investment and industrial regions, particularly along the
Dedicated Freight Corridors and Industrial Corridors.
Low-cost airports will be developed to promote air connectivity to smaller areas
Facilitate modernization of existing ports and development of new world class
ports.
Stringing together the Sagar Mala project, we will connect the ports with the
hinterland through road and rail.
Inland and coastal waterways will be developed as major transport routes.
Will build 100 Cities focused on specialized domains and equipped with world
class amenities.
Integrated infrastructure will be rolled out in model towns to focus on
cleanliness and sanitation.
Energy
Put in place a comprehensive National Energy Policy.
Augment electricity generation capacity through judicious mix of conventional
and non-conventional sources.
Expand the national solar mission and connect households and industries with
gas-grids.
Reforms in the coal sector will be pursued with urgency for attracting private
investment in a transparent manner.
International civil nuclear agreements will be operationalized.
Water conservation
18 June 2014
Need for considering all options including linking of rivers to ensure optimal use
of our water resources to prevent floods and drought.
Harness rain water through Jal Sanchay and Jal Sinchan to nurture water
conservation and ground water recharge.
Spotlight | NCC
Financials and Valuations
18 June 2014
Spotlight | NCC
Financials and Valuation
18 June 2014
Disclosures
Spotlight
| NCC
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NCC LTD
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