Nagarjuna Construction – Promoters warrant lapses

During Feb 07, Nagarjuna Construction allotted 2.5m warrants to promoters (M/s. A V S R Holdings Private Ltd), with option to convert into equity shares at Rs217/share, within 18 months, entailing cash inflow of Rs543m. As the promoters have not paid the amount within stipulated time frame,warrants have lapsed and this comes as a negative surprise to us. NCC had received 10% upfront payment of Rs54m, which will now be forfeited.

During Aug 2007, NCC had issued 9.1m warrants to Blackstone, to be converted into equity at Rs225/sh, entailing cash inflow of Rs2.1b. We expect that these warrants would possibly not be converted into equity, given that it is deeply out of the money. Further, as the FIPB approval is not received, Blackstone had not paid 10% upfront premium also, and thus non-exercise will not result in any forfeiture.

At the CMP of Rs127, the stock trades at reported PER of 18x FY09E and 13.7x FY10E.