Even in these difficult times, Nagarjuna Construction has bagged a couple of orders. Earlier this month the Rs3,472 crore firm secured orders worth Rs 527 crore from the Hyderabad and the Assam governments to be completed in two years time.
That boosts an already strong order backlog of Rs 12,420 crore, which is now 3.6 times the firm’s net sales in the year to March 2008. However, during the September 2008 quarter, additions to the order book fell 31 per cent, partly due to a high base effect.
That ‘s partly because Nagarjuna earns about a third of its revenues from the buildings and housing segment, a sector that is seeing a downturn and is unlikely to see a reversal in a hurry. Which is why even though Nagarjuna sales have increased by 41 per cent in the first half of this fiscal year, the growth could taper off to around 33 per cent for the current year to levels of Rs 4,500-4,600 crore.
Besides, the firm’s operating profit margin (opm) will continue to be under pressure because it is unable to pass on the increase in raw material prices for almost 30 per cent of its orders. For the remaining orders, the company can pass on the cost either partially or fully.
Although, prices of commodities have started coming off, it could be a while before the impact is felt . Margins are also weaker because of start-up costs for new businesses like power. The opm was down 220 basis points in the September quarter to 10.3 per cent and should remain at these levels for the rest of the year.
In the September quarter, the net profit was up a healthy 26 per cent but analysts have pencilled in a growth of only 13 per cent for the full year to around Rs180-Rs 185 crore, because money is now more expensive and outflows on interest could be higher.
The estimate assumes that all projects will be completed on time and there will be no delays. The NCC stock has given up 83 per cent since the start of 2008 compared to a 54 per cent fall in the Sensex and at the current price of Rs 60 trades at 7.5 times its estimated FY09 earnings.
