HDFC Securities has picked NCC Ltd. as one of its top Diwali stock recommendations for Samvat 2081, with a buy range of ₹273-303 and a target price of ₹363. The company’s diverse order book, along with strong execution capabilities and debt reduction focus, positions it well for future growth.
About the Company
NCC Ltd., formerly known as Nagarjuna Construction Company Ltd., is a prominent player in India’s construction and infrastructure sector, boasting over four decades of experience in delivering key infrastructure projects across the country. The company’s diversified portfolio includes projects in buildings, transportation, water and environment, irrigation, mining, and electrical transmission. NCC is known for its ability to execute projects for both central and state-level agencies, PSUs, and private sector clients.
Valuation and Recommendation
NCC has a well-diversified order book, with strong execution capabilities and positive tailwinds from government infrastructure projects. The company is expected to benefit from schemes such as PM Gati Shakti, Pradhan Mantri Awas Yojana, and Jal Jeevan Mission, which have seen increased government allocations. HDFC Securities expects revenue, EBITDA, and PAT to grow at a CAGR of 16%, 21%, and 39.6% respectively over FY24-FY26, recommending investors buy the stock in the range of ₹273-303, with a target price of ₹363 (18x FY26E EPS) by next Diwali.
Key Financials (FY23-FY26E):
- Total Operating Income: ₹13,351 crore (FY23) to ₹24,664 crore (FY26E)
- EBITDA: ₹1,343 crore (FY23) to ₹2,429 crore (FY26E)
- Profit After Tax (PAT): ₹569 crore (FY23) to ₹1,231 crore (FY26E)
- Earnings Per Share (EPS): ₹9.1 (FY23) to ₹20.2 (FY26E)
- Return on Equity (RoE): 9.4% (FY23) to 15% (FY26E)
Key Triggers
- Robust Order Book: NCC has a strong order book of ₹52,626 crore, representing 2.5x FY24 revenue as of June 2024. This diversified order book spans key sectors such as buildings, transportation, water and railways, and electrical projects, contributing 39%, 18%, 12%, and 21% of the total respectively.
- Government Schemes Driving Growth: The company is expected to benefit from increased government focus on infrastructure development, particularly through schemes such as PM Gati Shakti, Pradhan Mantri Awas Yojana, and the increased budget allocations for urban development.
- Debt Reduction Focus: NCC has brought down its net debt to ₹1,798 crore and plans to further reduce it to ₹1,000 crore by FY25, supported by improved collections, working capital reduction, and a strong pipeline of new projects.
Key Concerns
- Project Delays and Cost Overruns: Infrastructure projects are vulnerable to delays and cost overruns, particularly in the procurement of materials and equipment, which could impact profitability.
- Rising Input Costs: Prices of key raw materials such as cement, steel, and sand fluctuate with demand-supply dynamics, potentially putting pressure on NCC’s margins and profitability.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
