Motilal Oswal Financial Services

18 June 2014

Nagarjuna Construction

spotlight

The Idea Junction

Stock Info

Bloomberg

NJCC IN

CMP (INR)

Equity Shares (m)

256.6

M.Cap. (INR b)/(USD b)

18.3/0.3

52-Week Range (INR)

89/17

1,6,12 Rel. Perf. (%)

-1/132/115

Operational performance to improve

Asset monetization a key trigger

Financials & Valuation (INR b)

Y/E March

2014 2015E* 2016E*

61.2

6.9

4.0

6.6

0.0

67.5

10.4

5.2

7.8

1.1

35.0

0.7

2.8

25.6

0.7

0.9

0.7

0.8

75.6

12.0

6.1

8.1

2.0

35.0

1.3

77.8

-0.2

4.9

14.4

0.7

Revenues

% YoY

EBIDTA

Margins, %

PBT

Tax Rate %

Adj Net Profit -0.1

% YoY

EPS (INR/sh)

PER (x)

P/BV (x)

DER (x)

Order Intake up meaningfully; expect sharp improvement in operational

performance

During FY14, NJCC's order intake increased meaningfully to INR93b (up 121%

YoY). The book to Bill ratio stands at 3.4x vs the previous cyclical high of 4.4x

in mid FY12. Also, new orders entail superior margins given the limited

competition (as bidding condition in several contracts prohibit companies in

CDR from participating) leading to an improvement in the pricing power in

recent bids.



Thus, management expects margins to improve to more normative levels of

8% in FY15, implying an improvement of 138bp YoY. Given that the order intake

in FY14 was largely equally split (with 1H at INR47b, 51% share), we expect

possibility of ~15% revenue growth in FY15 (vs 6% revenue CAGR during FY10-

14); and is at the upper end of the management expectations of 10-15% growth

possibility in FY15.



Standalone nos; * Consensus est.

Shareholding pattern (%)

Correcting the balance sheet structure an important priority

During FY14, NJCC's standalone debt stood at INR24.7b (vs INR21.1b YoY); and

the management expects to end FY15 debt at less than INR20b. The debt

reduction is intended through a combination of asset monetization and fund

raising (rights issue, board approval for upto INR6.5b).



Asset monetization strategy involves:

NCC Power (INR4.7b in next six months),

Real Estate (INR4b over 4 years) and BOT assets (Western UP Tollway, tolls

INR1b and Bangalore Elevated Tollway, tolls INR363m); investments in both

these projects stand at ~INR2.7b.



As on

Mar-14 Dec-13 Mar-13

Promoter

20.4

20.3

Dom. Inst

8.8

9.6

10.4

Foreign

36.5

35.5

39.7

Others

34.3

34.5

29.7

Stock performance (1 year)

Valuations attractive; debt reduction key re-rating trigger



At the CMP, NJCC quotes at PER of 25.6x FY15E / 14.4x FY16E and P/BV of 0.7x.

During the FY05-FY08 economic upcycle, NJCC traded at an average PER of 28x

and a peak PER of 47x. Asset monetization and Debt reduction are important

re-rating triggers.

Spotlight

is a new offering from the Research team at Motilal Oswal. While our Coverage Universe

is a wide representation of investment opportunities in India, there are many emerging names in the

Mid Cap Universe that are not under coverage. Spotlight is an attempt to feature such mid cap stocks

by visiting such companies. We are not including these stocks under our active coverage at this point

in time. Motilal Oswal Research may or may not follow up on stocks under Spotlight.

Satyam Agarwal

(Satyam.Agarwal@MotilalOswal.com); +91 22 3982 5410

Nalin Bhatt

(NalinBhatt@MotilalOswal.com); +91 22 3982 5429

Investors are advised to refer through disclosures made at the end of the Research Report.

RED: Caution

AMBER: In transition

GREEN: Interesting

Spotlight

| NCC

Please refer to our “Order

Tracker” report released on

12 June 2014

Order Intake up meaningfully; expect sharp improvement in

operational performance



During FY14, NJCC’s order intake increased meaningfully by 121% YoY and stood

at INR93b; this compares with the initial expectations of INR66b. The

management stated that there is an improvement in the ordering activity

primarily led by state government capex.

Even the trends in Order Tracker suggests that on a TTM basis as at June 2014,

the project awards stood at INR2t, up 29% YoY; and have gradually inched up

from low levels of INR1.4t in June 2013. Mid-sized players (excluding L&T) have

reported a meaningful increase in project wins at INR1.3t, up 73% YoY.

Given that the order intake in FY14 was largely equally split (with 1H at INR47b,

51% share), we expect possibility of ~15% revenue growth in FY15. This is at the

upper end of the management expectations of 10-15% growth possibility in

FY15.

Margins during FY14 declined 146bps to 6.6%; however the decline is given one-

time adjustment on past receivables and poor margin orders being executed.

New orders entail superior margins given the limited competition (as bidding

condition in several contracts prohibit companies in CDR from participating)

leading to improved pricing power in recent bids. Thus management expects

margins to improve to more normative levels of 8% in FY15.

Order Book Trend (INR b)

Order Book

Order Intake (INR b): FY14 split equally between 1H/2H

Order Intake

Source: Company, MOSL

Order Book Composition, FY14

Mining

Power

18%

Metals

Irrigation

Electrical

International

Order Intake Composition, FY14

Metals

Electrical

Power

International

Buildings,

Roads, Oil

and Gas

37%

Water,

Environment

, Railways

25%

Water,

Environment,

Railways

38%

Buildings,

Roads, Oil

and Gas

46%

Source: Company, MOSL

18 June 2014

Spotlight

| NCC

NJCC’s order intake has bounced back from lows, still down

45% from FY12 peak levels

200

150

100

Order Intake (INR B, ttm)

% YoY

200%

150%

100%

50%

-50%

-100%

Order book has stabilized, BTB at 3.4x (vs peak levels of 4.4x

in mid FY12)

250

200

150

100

Order book (Rs b)

BTB (x), Standalone

5.0

4.0

3.0

2.0

1.0

0.0

Source: Company, MOSL

Order Tracker suggests improved intake largely led by mid-sized players

Mid-Sized players witness meaningful intake (INR b)

Order Intake (INR B) up 29% YoY on TTM basis

TTM Orders (INR b)

% YoY

-15

-35

Source: Company, MOSL

18 June 2014

Spotlight

| NCC

Correcting the balance sheet structure an important priority



During FY14, NJCC’s standalone debt stood at INR24.7b (vs INR21.1b YoY); and

the management expects end FY15 debt at less than INR20b. The debt reduction

is intended through a combination of asset monetization and fund raising (rights

issue). Importantly, the Board has also taken a decision not to participate for

any BOT projects in future, and will just bid for EPC contracts.

NJCC has received the Board approval for rights issue (upto INR6.5b). The intent

is to pay-off all the short-term loans and also NCDs (of INR6.2b) and thus

borrowings will be restricted to working capital limits (INR18b, March 2014).

Interest cost (INR M); Interest (% of EBIT, TTM) at 148%

Interest Cost

Interest (% of EBIT)

Net Debt has remained at elevated levels (INR M)

Net Debt

Source: Company, MOSL

Interest cost as % of EBIDTA at elevated levels (ttm); correcting the capital structure is an

important priority

Interest (INR m)

Interest /EBITDA (ttm, %)

Source: Company, MOSL

18 June 2014

Spotlight

| NCC

Three pronged asset monetization strategy



NCC Power (INR4.7b in next six months):

Sembcorp Utilities pte ltd, Singapore

has agreed to purchase the stake in NCC Power Projects for INR8.5b. NJCC

expects to recoup its entire investments of INR5.7b (of which INR1b has already

been received) in the next six months. The key issue is the transfer of coal

linkages to Sembcorp, for which the approval from Coal Ministry has been

pending.

Real Estate (INR4b over 4 years):

NCC Urban Infra (the real estate subsidiary)

has outstanding advances of INR4b from NJCC. The management stated that

there has been an understanding that the amount will be repaid over the next

four years (INR1b per annum) through land sales, and also real estate

monetization (for instance of ~250 apartments for Ranchi Games Village,

~INR800-900m), etc. Even during FY14, NCC Urban repaid INR500m of principal

and INR350m of interest.

BOT assets:

NCC is also attempting to monetize BOT road assets, including the

Western UP Tollway (FY14 tolls INR1b) and Bangalore Elevated Tollway (FY14

tolls at INR363m). The investments in both these projects by NJCC stand at

~INR2.7b.

Non-Current Investments composition (INR M)

NCC Infra

NCC Urban Infra

NCC Vizag Urban Infra

OB Infra

Nagarjuna Construction, Oman

NCC Infra Holdings, Mauritius

Jubilee Hills Land Mark Projects

Tellapur Techno

Others

Total

FY13

5,846

1,200

500

746

612

1,219

937

848

629

12,536

Details

PPP Projects holding company

RE projects holding company

RE project

BOT Road

Overseas construction

RE project

Source: Company, MOSL

18 June 2014

Spotlight

| NCC

Valuations attractive; debt reduction key re-rating trigger

At the CMP, NJCC quotes at PER of 25.6x FY15E / 14.4x FY16E and P/BV of 0.7x.

During the FY05-FY08 economic upcycle, NJCC traded at an average PER of 28x and a

peak PER of 47x. Asset monetization and Debt reduction are important re-rating

triggers.

NJCC Standalone Financials (INR m)

Revenues

% YoY

EBIDTA

Margins, %

PBT

Tax

Tax Rate %

Net Profit

Adj Net Profit

EPS (INR/sh)

PER (x)

* Consensus estimates

FY13

57,249

9.0%

4,709

8.2%

977

351

35.9%

626

2.4

29.2

FY14

61,173

6.9%

4,049

6.6%

-376

405

-56

-0.2

FY15E*

67,518

10.4%

5,249

7.8%

1,097

384

35.0%

713

FY16E*

75,636

12.0%

6,147

8.1%

1,950

683

35.0%

1,268

2.8

4.9

25.6

14.4

Source: Company, MOSL

NJCC: PE band

NJCC: P/BV chart

6.0

4.0

2.0

0.0

1.5

1.1

0.8

P/B (x)

15 Yrs Avg(x)

5 Yrs Avg(x)

10 Yrs Avg(x)

0.7

18 June 2014

Spotlight

| NCC

Please refer to our “INDIA

MODI-fied” report released

on 5 June 2014

Appendix: Infrastructure development an important priority

The Presidential Address to the joint session of the Parliament post formation of the

new government outlined the key agenda. Railways top the priority list of

infrastructure, with Diamond Quadrilateral and agri-rail network being initiated.

Some of the big bang infrastructure initiatives include capitalizing on the DFC/DMIC

and investment regions development. Other transport solutions including highways,

low cost airports and port-led development would also receive a big push. The

national energy policy would essentially attempt to tap diverse forms of energy,

while urbanization is envisaged as a growth driver with creation of 100 new cities.

Infrastructure and development of cities/towns



Chalk out an ambitious infrastructure development program to be implemented

in next 10 years.

Fast-track, investment friendly and predictable PPP mechanism.

Modernization and revamping

railways

on top of agenda.

Will launch diamond quadrilateral network of high-speed trains.

Network of

freight corridors

with specialized Agri-Rail networks for perishable

agricultural products.

Encourage R&D and high level local manufacturing for railway systems.

Will set up world class investment and industrial regions, particularly along the

Dedicated Freight Corridors and Industrial Corridors.

Low-cost airports

will be developed to promote air connectivity to smaller areas

Facilitate modernization of existing ports and development of

new world class

ports.

Stringing together the Sagar Mala project, we will connect the ports with the

hinterland through road and rail.

Inland and coastal waterways will be developed as major transport routes.

Will

build 100 Cities

focused on specialized domains and equipped with world

class amenities.

Integrated infrastructure will be rolled out in model towns to focus on

cleanliness and sanitation.

Energy



Put in place a comprehensive

National Energy Policy.

Augment electricity generation capacity

through judicious mix of conventional

and non-conventional sources.

Expand the national solar mission and connect households and industries with

gas-grids.

Reforms in the coal sector

will be pursued with urgency for attracting private

investment in a transparent manner.

International civil nuclear agreements will be operationalized.

Water conservation



Need for considering all options including

linking of rivers

to ensure optimal use

of our water resources to prevent floods and drought.

Harness rain water through ‘Jal Sanchay’ and ‘Jal Sinchan’ to nurture water

conservation and ground water recharge.

18 June 2014

Spotlight

| NCC

Financials and Valuations

18 June 2014

Spotlight

| NCC

Financials and Valuation

18 June 2014

Disclosures

Spotlight

| NCC

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18 June 2014