Surprisingly, even after a strong performance in the March quarter that beat the Street’s forecasts, NCC Ltd’s shares plunged by 9.1% on Monday although it bounced back slightly on Tuesday.
In the analysts’ conference call, NCC’s management guided for a dip in revenue for 2015-16. It was hard to fathom given that revenue in the March quarter surpassed Bloomberg’s consensus by a wide margin. At ₹ 2,210 crore, it was 15.5% higher than a year ago. But then, details show this was from faster execution of its captive power plants.
A major dampener was that orders in 2014-15 were lower by 17.4% at about ₹ 7,380 crore compared with a year ago. A report by Emkay Global Financial Services Ltd indicates a similar level of orders through the next two years. The brokerage has cut its earnings per share estimate in 2015-16 and 2016-17 by 25% and 8%, respectively, explaining the steep intra-day drop in the stock price.
It may be an uphill task for NCC to keep pace with the relatively high base of revenue and profit growth rate. Further, the firm’s receivables were lower during the quarter, which analysts say may not sustain once the effect of higher in-house projects starts wearing off.
That said, NCC’s operating margin in the March quarter at 8.4% was about 2.9 percentage points (higher than the year-ago period, which again beat estimates on the Street). New orders, which the management claims have come in on a better profit margin, may help sustain profitability at the current level. This is the only positive amid the gloomy revenue and profit growth forecast.
Meanwhile, NCC, like most other mid-sized construction firms, is beset by high interest costs, although it was lower during the quarter because it repaid some debt earlier through the proceeds from a rights issue. The management’s effort to cut back working capital should help trim interest costs in the coming quarters.
If NCC’s efforts to monetize its build, operate and transfer projects fructifies, it could be a shot in the arm for the stock, as the move would lighten the company’s balance sheet and lift earnings.
The writer doesn’t own shares in the above-mentioned companies.
