Q2FY24 Review: NCC: Strong execution and outlook

15 Nov 2023 , 10:54 AM

NCC’s Q2 revenue growth of 50% and Ebitda growth of 65% highlights the gains accruing from strong execution of the large order book. OB increased to Rs618bn as at end H1 – 4x book to bill and provides strong growth visibility over medium term. Improved balance sheet and growing cash flows is allowing mgmt. to bid for projects entailing equity commitment. Analysts of IIFL Securities cut FY24 EPS by 22% post one off impact in Q2. Reiterate BUY with TP of Rs182. 

Strong execution in Q2FY24:

NCC surprised in Q2FY34 with recurring standalone revenue growth of 49% (in a seasonally weak quarter) and Ebitda margin of 10.7% (up 105bps YoY). This was supported by healthy ramp up of execution for a large part of the order book (barring projects won in past few quarters). Reported revenue and Ebitda was impacted by write off revenue of Rs3.51bn for the Sembcorp project where company won an arbitration award of Rs1.98bn (against o/s of Rs6.06bn). Company would be exploring further legal options regarding this. NCC also won an arbitration from NHAI for another project worth Rs1.52bn.

Large Rs618bn order book provides strong growth visibility: 

NCC won projects worth Rs123bn in Q2 including Rs93bn worth of electrical works under RDSS and Rs32bn tunnelling project in JV with J Kumar. End H1 order book stands at Rs618bn – 4x book to bill on trailing 12m revenues. This provides very strong visibility for sustaining revenue growth at 15-20% Cagr over medium term even if there is election related disruption in awarding. Management indicated that company would continue to bid selectively in broad areas of focus amid intense competition across sectors. 

Increased willingness to utilise balance sheet to win projects: 

Quite a few recent contracts will entail equity investment by NCC to own and operate the projects. This includes two RDSS based electrical projects where company would need to invest ~Rs5bn over two years. Management sounded comfortable in taking such orders. SA net debt at Rs12.55bn is much lower than Rs18.5bn as at end H1FY23 excluding interest bearing mobilisation advance. ND/E should remain comfortable.