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Hold Nagarjuna Constructions – Kotak Sec

August 23, 2007

Kotak Securities after speaking to the management of Nagarjuna Constructions Company [NCC] maintain a HOLD on the stock with a target price of Rs 213. CMP – Rs 186.

The company is quite positive of achieving the targeted revenue growth for the current fiscal year. NCC expects to improve the operating margins for the current financial year as well, going forward. The company expects a 25% YoY jump in the order inflows as compared to last year. With a current order book of Rs.78 bn, we expect the revenues of the company to grow at a CAGR of 32% between FY07-FY09.

On the flip side, NCC being on high growth trajectory has availed hug quantum of loans for working capital and capex which will lead to larger outflow towards interest payment.

At the current market price of Rs.186, the stock is trading at 20x and 15.9x on P/E multiples and 10.9x and 9.2x on EV/EBITDA multiples on FY08 and FY09 estimates. Adjusted with BOT and land development valuations, it is trading at 16.9x and 13.4x on P/E multiples on FY08 and FY09 estimates.

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