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Small-Cap Construction Stock Gets Buy Call, Shares Can Surge 19% In 12 Months: Geojit

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Geojit, a leading brokerage firm, has recently published a report on NCC Limited (NCC), a small-cap Civil Construction company. The brokerage has recommended buy the stock of the company for a target price of Rs 89 apiece. The Brokerage claims 19% potential upside, considering the current market price and the estimated target price.

 

NCC is one of the largest well-diversified construction companies in India with a foothold in every segment of the construction sector. NCC reported a robust revenue growth of 56% YoY in Q1FY23 backed by its strong order book and pick-up in execution.

Stock Outlook

Stock Outlook

The current market price of the stock is Rs 74.85 apiece. The stock, on 20 June 2022 hit the 52 week low at Rs 52.20 apiece and on 15 September 2021, it hit the 52-week high level at Rs 87.50 apiece, respectively.

Returns over the past 5 years

Returns over the past 5 years

Over the past 1 week, the stock surged 0.74%. Whereas, in the past 1 month, it has given a negative return of 17.6%. In the past 3 months, it gave a high return compared to the past 1 month, around 20.14%. Over the past 1 year, the stock 4.89% negative return. Whereas, in the past 3 years, it gave 28.28% positive return. In the past 5 years, it gave a 12.51% negative return.

Robust order book
 

Robust order book

NCC's order book remains robust at Rs40,616cr (3.7x TTM revenue), supported by a strong order inflow of Rs4,456r in Q1FY23. The robust order book provides revenue visibility for three to four years. The main order during the quarter was for the wastewater treatment plant at Malad, Mumbai, which has Rs 3,833cr. The management expects order inflow to grow further as there is lots of bidding activity in the water projects, Jal Jeevan Mission, and opportunities in buildings as well as roads. The total receivables from Andhra Pradesh projects is picking up, the total receipt in Q1FY23 was Rs 120cr, and Rs44cr received in July. In FY23, the company expects Rs300cr from all AP projects.

Revenue to grow 15-20% in FY23

Revenue to grow 15-20% in FY23

Revenue increased by 56.3% YoY to Rs2,959cr in Q1FY23, owing to a strong order book and an improvement in execution. We expect the pace of execution to continue in coming quarters as most of the orders are in the execution stage. In FY23, management expects top-line growth of 15% to 20%. The construction, water and environment, and railway industries will be major contributors to growth. During the quarter, EBITDA margin fell 105 basis points YoY to 9.5%, while margins improved by 99 bps sequentially. The management indicated that margins were impacted by elevated commodity prices and higher subcontracting expenses. With the recent contraction in key raw material prices, we expect the EBITDA margin to be in the range of 10% to 10.3% in FY23. Adj. PAT increased by 132% YoY to Rs120cr in Q1FY23.

Valuations

Valuations

Geojit said, "We increase FY23 revenue estimate by 3% and declined our EBITDA margin by 100bps to factor in the higher commodity prices. Given the strong order book, healthy balance sheet and pick up in execution, we maintain BUY rating and value NCC at a P/E of 11x on FY23E earnings with a target of Rs 89."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

Story first published: Saturday, September 10, 2022, 13:23 [IST]
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