As one of India’s leading construction companies with a presence across buildings, roads, water, mining and power, NCC is one of the biggest beneficiaries of India’s focus on infrastructure development.
The biggest question now is where it stands at its current valuation, considering slow execution and order intake.
Elections, prolonged rains hit Q3 performance
NCC’s third-quarter performance was affected by a slow pace of execution due to elections, delayed land acquisitions and prolonged rains, which delayed the billing cycle. Consequently, revenue fell 1% year-on-year to ₹4,720 crore, while profit after tax (PAT) declined 13% to ₹185 crore due to muted execution.
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This affected NCC’s operating efficiency and reduced margins. Earnings before interest, tax, and depreciation (Ebitda) declined 14.6% year-on-year to ₹410 crore. In addition, its margin declined by 1.3% to 8.7% due to negative operating leverage, as higher fixed costs were spread over lower revenues.
Delays in payments also affected its working capital and debt levels, which rose from ₹1,005 crore at the start of FY25 to ₹2,415 crore in Q3. Debt increased by ₹680 crore compared to Q3FY24. Nonetheless, this is not a cause for concern as the company had a robust debt-to-equity ratio of 0.33 at the end of Q3.
Guidance muted, but order inflows likely to stay robust
Maharashtra accounts for 40% of NCC’s order book, which is facing a slowdown due to the recently concluded state election. Thus, this is not just a one-off quarter for NCC – the weak performance is expected to continue in the fourth quarter of FY25 due to delays in specific projects. As a result, NCC has had to revise its revenue growth guidance from 15% to 5% for the current year. This indicates flat revenue growth in Q4FY25.
It also revised its margin guidance from 9.5% to 9.25%. However, it maintained its order inflow outlook for this year at ₹20,000-22,000 crore. Of this, it has already secured orders worth over ₹13,600 crore in the first nine months of FY25 ( ₹8,440 crore in Q3).
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Besides, it has ₹10,000 crore worth of L1 (lowest bidder) positions in the pipeline. The company expects the announcement of L1 projects in the current quarter, which will help meet its order inflow guidance.
In addition, orders awarded by the union government picked up in the fourth quarter after a slowdown in the first three quarters of FY25. This augurs well for NCC.
Robust order book with promising growth pipeline
At the end of the third quarter, NCC’s order book stood at ₹51,834 crore, 2.7 times the trailing 12-month book-to-bill. The order book is diversified across geographies and infrastructure segments, providing strong growth visibility for the company.
Management has indicated a potential bid pipeline of ₹2.4 trillion for the year across its diversified order book. This also gives the company a strong tailwind to keep the order book-to-bill strong.
Higher budget allocation, Amaravati project
The Indian government increased the allocation in the Union Budget 2025 to ₹11.21 trillion for FY26, up 10% from last year. However, allocations were lower than the market expected, leading to a sharp correction in infrastructure companies’ stocks.
This disappointment comes after government infrastructure spending grew at an annual rate of 38.8% over FY20-24, according to the Economic Survey 2024-25. However, the correction was unjustified as there are many other favourable conditions.
The government will provide ₹1.5 trillion to states through 50-year interest-free loans for infrastructure development. It will also launch an asset monetisation plan for 2025-30 to invest ₹10 trillion in new projects. This is expected to unlock new opportunities for a dominant infrastructure player like NCC.
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In addition, the development of the ambitious Amaravati Capital City in Andhra Pradesh has begun. The Andhra Pradesh Capital Region Development Authority (APCRDA) has approved ₹45,249 crore of funds for it.
This capital city was initially planned in 2015, and according to NCC’s management, the AP government has started reopening previously awarded projects and awarding new ones. NCC was a key contractor in the original Amaravati development plan, and expects to receive awards for this project soon.
Valuations: Is there upside potential?
NCC has strong fundamentals and has seen good financial growth over the past five years. Its revenue increased at a compound annual growth rate (CAGR) of 17% to ₹18,439 crore, while profit rose at a CAGR of 10.5% during FY20-24.
NCC’s price-to-equity (P/E) ratio has dropped from 29 in July 2024 to 14.2 at present. The stock has corrected about 50% from ₹364 to ₹187, which factors in the near-term slowdown.
Notably, its current valuation is about a 20% discount to its 10-year median P/E ratio of 18, providing a favourable risk-reward opportunity. Centrum Broking values the stock at a P/E ratio of 13 and has a target price of ₹247 a share.
For more such analysis, read Profit Pulse.
Note: Throughout this article, we have relied on data from www.Screener.in. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Madhvendra has been a passionate follower of the equity market for over seven years. He is a seasoned financial content writer. He loves reading and sharing his honest opinion about publicly listed Indian companies and macroeconomics.
Disclosure: The writer does not hold the stocks discussed in this article.
