Accumulate Nagarjuna Construction – HDFC Sec

Nagarjuna Constructions Corp Ltd [NCCL] has six verticals comprising of Buildings and Housing, Transportation, Water and Environment, Electricals, Irrigation and Real Estate. Three verticals, Buildings and Housing, Transportation and Water and Environment together constitute 75% of the order backlog as well as turnover of NCCL.

NCCL has a well-diversified order book position, which is currently Rs 75.2 bn. The average execution period is 2.5 years, spread over more than 90 projects. Out of total order book, about 10% are overseas orders. Read Dalal Street News on Orders Secured by NCCL.

NCCL consolidated its real estate initiatives under NCC Urban Infrastructure (80% subsidiary, with promoters of NCC having 20%).NCCL in joint venture with Tishman Speyer & ICICI Ventures is planning to develop township on 400 acres site in Tellapur, Hyderabad and NCCL has a 26% stake in this project.

NCC has set up a separate company, Nagarjuna Infrastructure Holdings (NIH), to primarily focus on BOT related infrastructure projects. NCCL has an excellent track record of delivery among its peers portraying a reflection of its superior execution ability. US based Equity Fund, Blackstone ventures has bought 12.5% stake in the company.

NCCL’s foray into higher margin segments and the traction that its subsidiaries are expected to grow in the near future mean better visibility for revenues and profits going forward. On its fully diluted equity, it quotes about 18.5 – 19.5 times its FY09 earnings. HDFC recommends to accumulate NCCL in the Rs. 202 -224 band with an expected return of about 20% returns over the next 8-12 months.