Reliance Securities has a buy call on NCC with a target price of Rs 157.

The current market price of NCC is Rs 88.70.

Time period given by the brokerage is one year when NCC price can reach the defined target.

Investment rationale by the brokerage:
NCC (NJCC) reported a stellar performance in 2QFY19 as well with its revenue and adjusted PAT growing by 138 per cent YoY and 167 per cent YoY, respectively mainly underpinned by better execution and higher-than-expected operating margin. Its reported revenue stood at Rs31bn (+32 per cent QoQ). While EBITDA grew by 194 per cent YoY to Rs3.65bn, EBITDA margin rose by 220bps YoY and 41bps QoQ to 11.8 per cent.

Upgrading our EBITDA estimate by 11 per cent/4 per cent for FY19E/FY20E mainly to factor in strong margins, we maintain our BUY recommendation on the stock with a marginally revised Target Price of Rs157 (from Rs153 earlier).

Strong execution & robust order book drive performance: Led by a decent ramp-up in execution with strong order backlog, NJCC has delivered a robust performance with its revenue and EBITDA growing by 138 per cent YoY and 167 per cent YoY, respectively, while its EBITDA margin rose by 220bps YoY to 11.8 per cent. Looking ahead, we expect revenue to clock 29 per cent CAGR through FY18-FY20E. NJCC booked Rs1bn and Rs2bn unbilled revenue in revenue portion as per Ind-AS. The Management has maintained the earlier revenue growth guidance of nearly 45 per cent YoY for FY19E (Rs110bn) on the back of robust order inflow and a higher proportion of fast-track projects.

Order book continues to remain robust: Having witnessed a robust order inflow of (nearly Rs233bn in FY18 and Rs83.6bn in 1HFY19, NJCCs order book currently stands at Rs330bn (4.4x of FY18 revenue), which provides a healthy revenue visibility. Further, NJCC has secured orders worth Rs20bn in Oct18, and the Management expects to secure orders worth Rs140bn in FY19E. Considering Rs104bn inflows are already achieved till date, we believe achieving the targeted order inflow should not be an issue. As order book position has improved substantially, the Company may try to consolidate its position for some time to focus more on execution.

Outlook & valuation: Deterioration in the working capital cycle – mainly led by higher working capital requirement due to mobilisation advances to sub-contractors for new projects – was a prime concern for NJCC. We expect its working capital requirement to remain high considering robust order book. Nonetheless, expecting NJCCs revenue and earnings to clock 29 per cent and 24 per cent CAGR, respectively through FY18-FY20E, we reiterate our BUY recommendation on the stock with a revised SOTP-based Target Price of Rs157.

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