Nagarjuna sees 32% rise in profits on higher orders

Nagarjuna Construction Company, the Indian builder part-owned by Blackstone Group, forecast profit will rise 32 per cent this year on increased highway orders and a contract to build India's biggest steel furnace.

Net income will probably climb to Rs 200 crore ($50 million) in the year to March 31 from Rs 152 crore a year earlier, Finance Vice President Y D Murthy said in a telephone interview on Wednesday from Hyderabad, where Nagarjuna is based. Profit climbed 46 per cent last year and 81 per cent the year before.

Citigroup, Blackstone and other global investors aim to benefit from India's five-year, $475 billion spending to expand highways, ports and power utilities.

Inadequate infrastructure spending is curbing growth, 3i Group said last month when it announced plans to set up a $1 billion Indian investment fund.

"India's construction sector will witness huge growth for many years because of unprecedented infrastructure spending,'' said Sankaran Naren, who manages $1.5 billion in stocks, including Nagarjuna shares, at Prudential ICICI Asset Management Company in Mumbai. "Companies engaged in infrastructure will continue to benefit as long as there is no funding constraint.''

Nagarjuna's sales may rise 38 per cent to Rs 4000 crore this year, Murthy said, predicting 35 per cent annual revenue growth for the next three years. Mumbai-based Larsen & Toubro, India's biggest engineering company, expects sales to rise 25 per cent annually for the next five years, Senior Executive Director J P Nayak said in an interview on September 20.

"The government's focus on improving India's infrastructure will go a long way in maintaining the current boom in the construction sector,'' Murthy said.

"The government's focus on improving India's infrastructure will go a long way in maintaining the current boom in the construction sector,'' Murthy said.

Still, government moves to restrict a tax break may erode earnings, said Shailesh Kanani, an analyst at Angel Broking, with a "neutral'' rating for the stock.

"Though Nagarjuna has a strong order book position, there's concern about the removal of tax benefits,'' Kanani said. "The withdrawal will put pressure on margins.''

Nagarjuna shares fell 2.25 per cent to Rs 239 on the Bombay Stock Exchange.

Blackstone's purchase of 12 per cent of Nagarjuna for $150 million has helped Nagarjuna shares climb 13 per cent this year, more than its peers. IVRCL Infrastructures & Projects has risen 7.7 per cent, while Hindustan Construction Company has declined 3.5 per cent.

Nagarjuna said on September 19 it signed a venture with South Korea's Posco to build a $391 million blast furnace for Steel Authority of India. That marks Nagarjuna's first foray into electrical and mechanical projects, Murthy said.

"The association with Blackstone and new ventures such as the one with the Posco will definitely induce us to bid for big projects,'' he said.

Nagarjuna also plans to borrow Rs 3800 crore this year and will bid for Rs 4800 crore of orders by the end of March, he said, forecasting orders in hand will increase to Rs 9200 by the end of March 2008.