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NCC's Q4FY19 results (Outperformer) - Capped off a good year with excellent quarter

Q4FY19 result highlights

• NCC reported a strong growth in revenues of 42% in Q4FY19 to Rs34bn (est: Rs35bn) and 60% growth in FY19 to Rs121bn led by strong execution and backed by a strong order backlog. As a result, FY19 revenue beat its guidance of Rs110bn by 10%.
• EBITDA grew 31%yoy to Rs4bn in line with our estimate of Rs4bn aided by improvement in margins of 11.7% (+40bps higher than our estimates). FY19 EBITDA came in at Rs14.2bn, a growth of 67% and EBITDA margin was 11.8% (+50bps higher than FY18).
• Adjusted PAT grew by 40%yoy to Rs1.9bn in Q4FY18  as against estimate of Rs1.7bn on account of lower interest cost than our estimates. FY19 PAT grew by 57% to Rs6.2bn. 
• Debt decreased sharply by Rs2bn on qoq basis to Rs20bn with improved collection in Q4FY2019. Receivables were stable at Rs32bn on qoq basis.
• Order inflow in Q4FY19 was Rs128bn, a growth of 2.5x and FY19 was Rs256bn, second consecutive year of high order inflow. The order inflow is against the order inflow guidance of Rs156bn, a huge beat compared to guidance.  As a result, NCC’s order backlog is Rs412bn (standalone order backlog of Rs393bn, 3,2x book to bill ratio).  NCC has guided for a moderate revenue growth in FY20, EBITDA Margin of 11.5-12% and Rs4-6bn from monetization of investments in 2-3 years.    

Key positives: Strong order inflow of Rs126bn in Q4 and Rs256bn in FY19, strong execution and margins.

Key negatives: Weak order inflow led by general elections and continued uncertainty caused by on-going arbitration/court cases. 

Impact on financials: Earnings upgrade of 7% in FY20E and introduce our FY21E earnings at Rs7.5bn (EPS of Rs12.5/share).

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 10-12% revenue growth in FY20, if not more. Working capital/debt levels have been contained at current levels due to improved collections in Q4, addressing market concerns. We expect revenues/earnings to grow at 12%/ 12% CAGR over FY19-21E. Current valuation at 9x FY20E earnings is compelling. Maintain Outperformer with price target of Rs157.