NCC, one of the largest, well-diversified construction companies in India, which has a foothold in every segment of the construction sector, has seen its shares perform really well on exchanges.
In the current year so far, the shares have rallied 81.2% to ₹152 apiece, marking their best yearly performance since 2015. Remarkably, the stock closed positively in five out of the last seven months, with July standing out as the strongest performer, delivering a return of nearly 30%. This strong upward rally in shares was attributed to the company's robust order wins.
Going forward, the shares will continue their upward momentum, according to projections made by the analysts at Geojit Financial Services. The optimism stems from the substantial increase in order flows, which surged by 83% YoY, reaching an impressive figure of ₹8,154 crore in Q1FY24, taking the total order book to an all-time high of ₹54,110 crore (which is 3.8x trailing twelve-month revenue).
Looking ahead, the management foresees strong traction in order inflows in FY24 and has set an order inflow target of ₹26,000 crore. The brokerage underscored the well-diversified nature of the company's order book, comprising buildings (50%), electrical projects (15%), water and railway projects (15%), transportation (11%), mining (9%), and irrigation (1%).
In Q1FY24, NCC demonstrated healthy financial performance on all fronts. Its revenue from operations surged by 30% YoY to ₹3,838 crore, primarily attributed to the robust execution of Jal Jeevan Mission projects.
The strategic execution of the UP Jal Jeevan water project, valued at ₹16,500 crore, exhibited significant progress and contributed around 30% of the Q1 FY24 revenue. NCC anticipates top-line growth of 20% YoY for FY24 and 15% YoY growth for FY25, said the brokerage.
During the same quarter, the company's EBITDA margin improved by 41 basis points YoY to 9.9%, supported by strong execution and benign raw material prices. With the recent contraction in key raw material prices, the management expects the EBITDA margin to be in the range of 10% in FY24. The net profit during the quarter rose by 35% YoY to ₹162 crore.
Backed by robust order execution, a record-breaking order book, and enhanced margins, the brokerage has raised its FY24 and FY25 EPS estimates by 5% and 10%, respectively. Consequently, the brokerage reiterates its 'buy' rating on NCC, setting a target price of ₹184 per share, valuing the stock at a P/E of 11x on FY25E earnings.
Earlier, another domestic brokerage firm, IDBI Capital, also reiterated its 'buy' rating and raised its target price higher to ₹185 from an earlier price of ₹154. In the bull case scenario, the brokerage sets an even higher target price of ₹232 apiece.
“Up-cycle in NCC ordering has continued in FY24E, and including L1, it has achieved 53% of its FY24 guidance and is driven by the building and electrical segment. The stock at a PER of 10x FY25E EPS continue to trade at a 20–25% discount to its infra peers, and this could narrow on improved execution, order wins, and an uptick in the margin,” said the brokerage.
14 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.