RBS puts 'buy' on Nagarjuna Construction

RESEARCH: RBS

RATING: BUY

CMP: Rs 187.05

RBS retains ‘Buy’ rating on Nagarjuna Construction (NCC) and raises the target price to Rs 215.20. For the March ‘10 quarter, normalised PAT of NCC rose 46% q-o-q and 83% y-o.y to Rs 69.9 crore on an 28.3% qo-q and 38.7% y-o-y increase in net sales to Rs 1520 crore, thanks to a surprise of 6% in net sales and 40 bps EBITDA margin.

The consolidated entity’s FY10 performance beat the guidance thanks to improved profitability from NCC’s Dubai subsidiary. Execution by NCC’s buildoperate-transfer (BOT) portfolio of subsidiaries improved in FY10 despite lack of new orders. The Bangalore Elevated bridge started collecting tolls in April, while remaining three projects will start toll collection by September ‘10. Thanks to its existing large portfolio of assets ready for securitisation, the company is in a better position to win more BOT projects from NHAI.