Nagarjuna Construction Company (NCC) posted 12.4% decline in topline to Rs1,098 crore (Rs1,254cr) for 4QFY2009.
This sluggish growth in topline is attributed to lower revenue recognition on account of cancellation and delays in order execution.
For FY2009, the company registered 19.5% yoy growth in topline to Rs4,151 crore (Rs3,473cr).
Going ahead, we expect the company’s topline growth to continue to be strong primarily on the back of strong Order Book and positive outlook for the sector.
On the Operating front, NCC’s results were below our estimate as OPM at 7.6% (8.7%) dropped more than our expectation of 8.7%.
Margins contracted primarily due to the losses being booked in the road segment and order cancellations. For FY2009, the company reported OPM of 9.0% (10.4%).
Going ahead, we believe that with the prices of bitumen, steel and other commodities cooling off, the company could surprise on the margin front. We have estimated OPM of 9.5% and 9.7% for FY2010 and FY2011, respectively.
We have arrived at a SOTP target price of Rs142 valuing NCC’s core construction business at Rs111 (10x FY2011E EPS), BOT business at Rs15.0 and real estate arm at Rs16.4.
We believe that at current levels of Rs139, the stock is fairly valued and provides very little potential upside to our Target Price of Rs142.
Therefore, we recommend NEUTRAL view on the stock.
Click here for a detailed report