NCC's Q3FY19 results (Outperformer) - Stellar execution growth
Q3FY19 result highlights
- NCC reported robust execution growth during the quarter along with robust margins and order inflow. Debt increased sharply by Rs5bn on qoq basis to Rs21.6bn but needs to be viewed in the context of the execution surge and elevated capex levels. PAT grew 59.7%yoy to Rs1.6bn as against estimate of Rs1.35bn.
- Revenue grew 74.3%yoy (albeit relatively low base) to Rs32.3bn (est: Rs28bn) led by a strong order backlog and robust execution. For 9MFY19, revenue stood at Rs87bn (+68%yoy) and the company expects to beat its FY19 revenue guidance of Rs110bn.
- EBITDA grew 53.8%yoy to Rs3.9bn, sharply above our estimate of Rs3.2bn due to higher revenue and the resulting operating leverage. As a result, EBITDA margin at 12.2% was ahead of our estimate of 11.5% albeit down 160bp yoy on a high base of the PY.
- Interest cost grew 19.4%yoy to Rs1.25bn (est: Rs1.1bn) led by increase in gross debt from Rs16.6bn in Sep-18 to Rs21bn in Dec-18 and increased utilisation of non-fund limits. Debt levels increased due to higher working capital utilisation and Rs1.2bn capex during Q3FY19 (Rs3.2bn during 9MFY19). Receivables grew from Rs27.6bn in Sep-18 to Rs32bn in Dec-18 due to higher execution as well as some delays in payments, particularly in Telangana and AP projects.
- Order inflow in Q3FY19 was Rs44.6bn taking NCC’s order backlog to Rs342bn (standalone order backlog of Rs321bn, 2.9x TTM revenue). YTD order inflow is Rs198bn (including Rs70bn in Q4FY19). NCC has guided for a medium term revenue growth target of 15-20% and Rs4-6bn from monetization of investments in 2-3 years.
Key positives: Strong execution and margins
Key negatives: Sharp rise in debt qoq and continued uncertainty caused by on-going arbitration/court cases.
Impact on financials: Earnings upgrade of 16.7%/7.1% in FY19E/FY20E led by upward revision in revenues and EBITDA margins.
Valuations & view
NCC continues to witness robust order inflows securing strong growth momentum for the company. While the FY19 revenue and margins are clearly likely to exceed the guidance, a well-diversified and robust order backlog also provides visibility of 13-15% revenue growth in FY20, if not more. While working capital/debt levels have risen, the same is likely to be contained at current levels due to improved collections usually witnessed in the March quarter and receipt of pending mobilisation advances of Rs4-5bn. We expect revenues/earnings to grow at 35%/ 23% CAGR over FY18-20E. Current valuation at 7.9x FY20E earnings is compelling. Maintain Outperformer with revised price target of Rs157.
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