NCC reported strong second quarter (of this fiscal) bottom-line growth, aided by a better operational performance, the sale of land and lower interest cost. We estimate 16 and 48 per cent CAGRs in revenue and PAT respectively over FY16-18 following the healthy order inflows and lower leverage.
Q2 revenue dipped 6.6 per cent yoy (though up 21.7 per cent qoq) due to the greater proportion of revenue from its power project in Q2 FY15. Following the strong order inflow in FY16, we expect revenue over FY16-18 to come at a 16 per cent CAGR.
The EBITDA margin rose 70 bps yoy to 8.8 per cent (8.1 per cent a year ago and 9.2 per cent the previous quarter), supported by the high revenue growth and sale of some of its real-estate assets. Management expects to hold to an EBITDA margin of nearly 8.75-9 per cent (incl. real estate land sale) in FY16/17.
Net profit came at Rs.55 crore, rocketing 148 per cent and driven by superior execution and a steep drop in interest cost (17 per cent down yoy) aided by reduced debt and a revised credit rating (to BBB+). We expect a similar reduction in the second-half of current fiscal.
At the ruling market price, the stock trades at a core PE of 7.2x FY18e earnings. We have a buy rating on it, with a sum-of-parts price target of Rs.120 based on 1x book value of all assets (Rs.23/share) and Rs.97 for the core business at a PE of 12x FY18e EPS.
Rise in interest rates and slowdown in order inflows are key risks.
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