NCC hits new high; stock rallies 47% in two months on positive outlook

Given the strong revenue growth of 41 per cent in 9MFY24, NCC has upgraded its revenue guidance from 20% plus to 30-33% year-on-year growth in FY24

Shares of civil construction company NCC hit a new high of Rs 243 as they surged 7 per cent on the BSE on positive outlook. In the past two months, the stock has zoomed 47 per cent.

NCC is engaged in the construction of roads, buildings, irrigation, water and environment, electrical, metals, mining, and railways. Apart from executing projects across India, the company has a presence in the Middle East through its subsidiaries in Muscat and Dubai.

In the third quarter of the current financial year 2023-24 (Q3FY24), the company secured orders aggregating to Rs 796 crore and the order book stood at Rs 57,440 crore on a consolidated basis as at December 31, 2023.

Given the strong revenue growth of 41 per cent in April to December period (9MFY24), NCC has upgraded its revenue guidance from 20 per cent plus to 30-33 per cent year-on-year growth in FY24. NCC is L1 in orders of Rs 4,000 crore and has received LoA for an order of Rs 1,250 crore recently. Accordingly, NCC maintained consolidated order inflow guidance of Rs 26,000 crore for FY24.

"NCC has survived adverse business cycles and is showing marked improvement in operations and net working capital (NWC) management and expects to reduce debt further to Rs 1,000 crore by March 2025. Additionally, part receipt of Vizag deal proceeds with near term visibility of receipt of remainder proceeds further strengthens the balance sheet," according to analysta at JM Financial Institutional Securities.

NCC has received part proceeds of Rs 52 crore for Vizag deal in Q3FY24 and expects the remainder equity value of Rs 100 crore to be received in two tranches by June-24. Equity commitment for Maharashtra smart metering projects stands at Rs 400 crore.

"NCC plans to bring in 50 per cent partner where NCC's equity share could be in the range of Rs 100-Rs 200 crore depending on premium it receives on sale of stake in the project from partner," JM Financial said in a Q3 result update with a target price of Rs 250 per share.

As the company is in receipt of continuous new orders, the per cent share of less than 10 per cent execution is likely to remain higher even in H2FY24 and FY25 and it does not necessarily pose an execution risk, according to India Ratings and Research (Ind-Ra).

The order book, excluding the orders received during January-September 2023, has a large number of projects requiring an increased run-rate of execution to meet the stipulated completion dates. The NCC management has informed Ind-Ra that an extension of timelines is available in the regular course of business and it does not foresee any challenge in order execution.

In line with improved working capital cycle in H1FY24, Ind-Ra expects NCC to reduce its working capital intensity for FY24 and FY25 by way of the initiatives taken to improve diversification away from Andhra Pradesh and dealing increasingly with the government of India-owned counterparties. 

Ind-Ra believes any further delays in the certification of bills or undue delays in realisation of the same can impact the overall liquidity profile of the company, leading to an increase in debt levels and/or a higher interest outflow and could be negative for the ratings.