NCC: new order inflows positive, but higher interest costs a worry

NCC: new order inflows positive, but higher interest costs a worry

NCC Ltd(earlier known as Nagarjuna Construction Co. Ltd) announced on Monday that it got new orders worth Rs815 crore. The company is targeting new orders worth about Rs9,000 crore for this fiscal (FY12), excluding about Rs5,000 crore worth of in-house orders. Y.D. Murthy, chief financial officer, said in an interview to CNBC-TV18 that it had already won new orders worth Rs2,000 crore in the first three months of the current fiscal.

Analysts say the company may miss its order inflow target. “NCC had guided order intake of Rs14,000 crore in FY12 (including Rs5,000 crore from independent power project orders). However, because of slow order flow momentum witnessed in the first quarter of FY12, achieving the forecast of Rs14,000 crore appears unlikely," Motilal Oswal Securities Ltd analysts said in a note on NCC’s June quarter earnings preview.

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For the June quarter, analysts foresee many companies in the business reporting a decline in profits on account of higher interest expenses, and NCC could be one of them.

“A shocker should come on the earnings front, as we expect the company to post a decline of 38.9% year-on-year (y-o-y)/29% quarter-on-quarter to Rs25.3 crore for the quarter. This would be primarily on account of burgeoning interest cost (jump of about 96.3% y-o-y), led by elongated working capital cycle," wrote analysts from Angel Broking Ltd in their June quarter preview of earnings.

NCC, like other infrastructure firms, continues to be beset by concerns about higher interest rates.

Further, financial closure for Nelcast Energy Corp. Ltd (NECL), in which NCC acquired a 55% stake through its unit, has got delayed. According to Shailesh Kanani of Angel Broking, “Investors are closely watching the financial closure of NECL, which is expected this month. The financial closure was initially expected in March. Any further delays in the same would be a negative for the stock."

NCC missed its stand-alone revenue and order inflows forecast last fiscal. Given that, it is not surprising that many analysts downgraded earnings estimates for FY12 after the company announced results for the fourth quarter of FY11. For FY12, NCC had forecast revenue of Rs7,200 crore on a consolidated basis, which represents 15% growth over FY11.

It’s well known that infrastructure stocks have underperformed broader markets for a while now, and NCC is no exception. What’s disheartening is that analysts expect this trend to continue for some more time.

Graphic by Yogesh Kumar/Mint

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