>NAGARJUNA CONSTRUCTION (CITI)

Buy: 1QFY10 – In-line Results And Healthy Order Inflow

■ Inline 1QFY10 Results — Nagarjuna Construction’s 1QFY10 PAT at Rs382m grew 3% YoY vs. CIRA estimate Rs366m. Margin increased 229bps to 10.3% and was 187bps ahead of estimates. Revenue at Rs10bn grew 5% YoY and was ~4% below estimates.

■ Sharp increase in interest costs is a cause of concern — Interest cost increased 45% YoY – a cause of worry as it could be indicative of working capital stress/ more than expected investments into subsidiaries. We await more clarity on this.

■ Order inflow remains healthy — The company has secured orders worth Rs28.7bn in FY10 so far vs. full year guidance of Rs65bn – a healthy trend in the initial part of year especially given election uncertainities. Though breakup of order inflow is not available yet, we expect international orders to remain muted in FY10 due to general slowdown globally.

■ Sale of stake in Gautami Power — NJCC has sold its 9.5% stake in Gautami Power to GVK for Rs1.13bn, resulting in capital gain of approximately Rs0.5bn.

■ Overall a good start to FY10 — Order inflow and margins in 1QFY10 have been strong. NJCC is currently trading at 13x 1yr fwd EPS and we believe that risk reward remains favourable at these levels. Maintain Buy.

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