NCC Ltd., a construction firm whose shares have surged the most among peers since the March lows, received another validation. Billionaire investor Rakesh Jhunjhunwala recently increased his stake in the builder of roads to power transmission lines.

While Indian equity benchmarks have erased pandemic-driven losses since March lows, NCC’s stock has more than doubled during the period. And it has outperformed peers such as Ahluwalia Contracts (India) Ltd., PSP Projects Ltd., JMC Projects (India) Ltd. and Capacite Infraprojects Ltd.

Investors bet on the construction company as its order inflows improved, receivables from a key market fell, and on hopes of a recovery in execution. Increase in stake by Jhunjhunwala only further fuelled the rally.

Jhunjhunwala and his family, one of the biggest public shareholders in NCC, raised their holding to 13.7% as of Dec. 3 from 10.2% in March, according to latest stock exchange filings.

Here’s what’s going in favour of NCC…

Tops Order Inflow Guidance

NCC had guided for an order inflow worth Rs 10,000 crore in the financial year ending March 2021. But with its latest Rs 3,900-crore deal win in November, the cumulative inflow stands at Rs 10,200 crore, according to Antique Stock Broking. Also, the company has emerged as the lowest bidder for another Rs 720-crore order.

YD Murthy, executive vice president at NCC, expects order inflows to be in the range of Rs 14,000-15,000 crore for the ongoing financial year 2020-21. The incremental orders, he told BloombergQuint on Dec. 4, are essentially expected to come from water projects in Uttar Pradesh and affordable housing projects in Maharashtra, among others. The company, he said, expects to close the ongoing financial year with a total order book of Rs 35,000-40,000 crore.

According to Antique Stock Broking, NCC in the last five quarters has demonstrated higher execution availability, with its order book-to-trailing 12-month revenue standing at more than three times.

Reducing Exposure To Andhra Pradesh

In May 2019, the Andhra Pradesh government led by YS Jaganmohan Reddy had cancelled some of the company’s projects sanctioned by former Chief Minister Chandrababu Naidu. The state accounted for about 15% of NCC’s total order book in the third quarter.

The company, Murthy said, aims to lower its exposure in Andhra Pradesh to less than 10% by the end of 2020-21. The order book from the state is at Rs 4,300 crore, and, according to a company statement, is completely under execution. It comprises affordable housing projects under the Pradhan Mantri Awas Yojana, ADB-funded Amrut projects and capital city orders.

Besides, NCC‘s receivables from Andhra Pradesh have been declining since FY19. The receivables, Murthy said, came down by Rs 230 crore so far during the ongoing fiscal, and are likely to further lower by Rs 200 crore over the next two months.

Growth Recovery In Second Half

Centrum Broking expects a strong execution recovery in the second half of the ongoing fiscal led by improved labour availability. A pickup in economic activities, higher government spends, push for affordable housing and demand for pipe infra, according to the brokerage’s November report, are expected to aid the company’s top line.

NCC’s Murthy expects the company to deliver a better top line in FY21 but will only scale back to its peak turnover of Rs 12,000 crore by FY23.



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