>NAGARJUNA CONSTRUCTIONS: Strong order booking inflates guidance (RELIGARE)

Nagarjuna Constructions’ (NCC’s) Q3FY10 results were largely in line with our estimates. Topline grew 15.6% YoY to Rs 11.9bn while the EBITDA margin expanded 119bps on a 32% growth in adj. PAT growth to Rs 479mn. NCC has also increased the full-year guidance for order inflows to Rs 75-80bn from Rs 65bn previously due to robust order booking by the company (orders of Rs 66bn booked during 9MFY10). We maintain Buy on the stock but scale back our target price to Rs 184 from Rs 192 earlier.

Results in line: NCC’s net sales for Q3FY10 grew 15.6% YoY and 11.3% QoQ to Rs 11.9bn – largely in line with our estimates. The EBITDA margin expanded 119bps to 9.9%, 55bps above our estimate mainly due lower construction expenses (as a proportion of revenues). In line with the strong operating performance, NCC’s adj. grew 32% YoY and 9.9% QoQ to Rs 479mn. Consolidated order book at Rs 148.1bn: NCC ended Q3FY10 with an order book of Rs 148.1bn or 3.1x its FY10E revenues. The company has bagged orders worth Rs 19.7bn during the quarter and Rs 66bn during the year so far, surpassing the full-year order inflow guidance. Consequently, the management has revised its FY10 order inflow guidance from Rs 65bn to Rs 75-80bn. Since only a small proportion of its order backlog is from Andhra Pradesh (7.6% (11.3bn) of total order book), a state currently gripped with political conflicts, NCC is not likely to face any material execution delays.

Revenue guidance maintained at Rs 48bn: NCC has reported revenues of Rs 32.5bn for 9MFY10. For the full-year, the management has maintained its revenue guidance at Rs 48bn on a standalone basis and Rs 55bn on a consolidated basis; this implies an ambitious 35% revenue growth target on standalone basis for Q4FY10.

Power project update: NCC has plans to develop a 1,320MW thermal power plant at a total project cost of Rs 70bn (Rs 17bn equity and Rs 53bn debt). So far, it has invested Rs 500mn in the project. The company has already acquired land for the project and tied-up with Mahanadi coalfield for sourcing coal. NCC expects the project to attain financial closure by March ’10. The company intends to dilute up to 49% of its stake in this venture.

Maintain Buy: Currently, the stock trades at a P/E of 17.6x FY11 earnings. Exsubsidiary, it trades at 11.8x FY11 earnings. We prune our FY11 earnings estimates by 7.3% mainly on expectations of a 30bps dip in margins and increase in interest cost. We arrive at a SOTP target price of Rs 184 from Rs 192.

To read the full report: NAGARJUNA CONSTRUCTIONS