ANNUAL REPORT ANALYSIS 25 JUL 2018 NCC BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Mixed bag NCC FY18 has been a mixed bag with big positive surprises from (1) lifetime high order inflows of Rs 253bn (2) adjusted EBIDTA margins expansion by 172bps to 10.4% (multiyear highs) & (3) reduction in debt to Rs 13bn (0.29x net D/E, aided by Rs 5.5bn QIP). The positives were dented by (1) Sembcorp BG encashment of Rs 3.4bn (2) TAQA claims provisioning and (3) Rs 3.3bn of subsidiaries losses. Other matrices on (1) Corporate Governance (2) Auditors remuneration (3) Management compensation & (4) ESG have been satisfactory. FY19E should be robust year for the company as it has guided for 45% revenue growth with likely improvement in margins. Balance sheet debt may go up as WC demand may rise on back of robust execution. Subsidiaries losses shall get curtailed as old international projects are nearing completion and major clients’ litigation have been addressed. There could be positive upsides from settlement with TAQA and Sembcorp on claims currently in arbitration. Recent correction presents good entry point with attractive core EPC valuation of 10.3x FY20E EPS. We maintain BUY with a SOTP TP of Rs 159/sh . Key highlights of annual report Profit & Loss, Multiple one offs, Earnings quality improvement: NCC reported 11.3% EBIDTA margins on account of Rs 810mn EBIDTA from Rs 600mn bonus (Lucknow Agra Expressway) and Rs 210mn on NHAI claims. Adjusted for same EBIDTA margins came in at 10.4%. Exceptional item of Rs 1,066mn, investment diminution resulted in RPAT of Rs 2,868mn and APAT of Rs 3,123mn. Earnings quality improved as other income reduced from Rs 1,401mn to Rs 1,158mn YoY. Balance sheet, mixed bag: Whilst standalone debt reduced to Rs 13bn (aided by Rs 5.5bn QIP) the interest bearing (large part) mobilization advances increased sharply from Rs 5.7bn to Rs 14.2bn on account of robust order wins. Debtors deteriorated from 100 to 143days (refer BS section in ARA). Despite this, NWC days improved from 130 to 108days on account of increase in liabilities from 178 to 251 days. Cash flows negative despite muted revenue growth YoY: Cash flow quality remains poor with negative cash flow of Rs 2.5bn, post Capex and Interest expense. Auditors/Board remuneration, ESG: S.R. Batliboi & Associates LLP is Auditor and audit fee reduced FY17/18 to Rs 17.7/12.7mn. Board remuneration reduced from Rs 170mn to Rs 162mn. ESG is compliant, no major related parties’ transaction in FY18. FINANCIAL SUMMARY (Rs mn) FY16 FY17 FY18 FY19E FY20E Net Sales 83,252 78,921 74,363 100,278 122,784 EBITDA 7,376 6,852 7,739 9,375 11,577 APAT 2,402 2,758 3,123 3,552 4,687 Diluted EPS (Rs) 4.3 5.0 5.2 5.9 7.8 P/E (x) 20.8 18.1 17.3 15.2 11.5 EV / EBITDA (x) 9.0 9.4 8.6 7.8 6.5 RoE (%) 7.4 8.2 8.1 8.1 9.8 Source: Company, HDFC sec Inst Research INDUSTRY INFRASTRUCTURE CMP (as on 24 Jul 2018) Rs 90 Target Price Rs 159 Nifty 11,134 Sensex 36,825 KEY STOCK DATA Bloomberg NJCC IN No. of Shares (mn) 601 MCap (Rs bn) / ($ mn) 54/786 6m avg traded value (Rs mn) 863 STOCK PERFORMANCE (%) 52 Week high / low Rs 142/76 3M 6M 12M Absolute (%) (30.1) (28.5) (1.4) Relative (%) (36.4) (30.4) (15.6) SHAREHOLDING PATTERN (%) Promoters 18.11 FIs & Local MFs 31.99 FPIs 16.44 Public & Others 33.46 Source : BSE Parikshit D Kandpal [email protected]+91-22-6171-7317 Kunal Bhandari [email protected]+91-22-6639-3035
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ANNUAL REPORT ANALYSIS 25 JUL 2018
NCC BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Mixed bag NCC FY18 has been a mixed bag with big positive surprises from (1) lifetime high order inflows of Rs 253bn (2) adjusted EBIDTA margins expansion by 172bps to 10.4% (multiyear highs) & (3) reduction in debt to Rs 13bn (0.29x net D/E, aided by Rs 5.5bn QIP). The positives were dented by (1) Sembcorp BG encashment of Rs 3.4bn (2) TAQA claims provisioning and (3) Rs 3.3bn of subsidiaries losses. Other matrices on (1) Corporate Governance (2) Auditors remuneration (3) Management compensation & (4) ESG have been satisfactory. FY19E should be robust year for the company as it has guided for 45% revenue growth with likely improvement in margins. Balance sheet debt may go up as WC demand may rise on back of robust execution. Subsidiaries losses shall get curtailed as old international projects are nearing completion and major clients’ litigation have been addressed. There could be positive upsides from settlement with TAQA and Sembcorp on claims currently in arbitration. Recent correction presents good entry point with attractive core EPC valuation of 10.3x FY20E EPS. We maintain BUY with a SOTP TP of Rs 159/sh. Key highlights of annual report
Profit & Loss, Multiple one offs, Earnings quality improvement: NCC reported 11.3% EBIDTA margins on account of Rs 810mn EBIDTA from Rs 600mn bonus (Lucknow Agra Expressway) and Rs 210mn on NHAI claims. Adjusted for same EBIDTA margins came in at
10.4%. Exceptional item of Rs 1,066mn, investment diminution resulted in RPAT of Rs 2,868mn and APAT of Rs 3,123mn. Earnings quality improved as other income reduced from Rs 1,401mn to Rs 1,158mn YoY.
Balance sheet, mixed bag: Whilst standalone debt reduced to Rs 13bn (aided by Rs 5.5bn QIP) the interest bearing (large part) mobilization advances increased sharply from Rs 5.7bn to Rs 14.2bn on account of robust order wins. Debtors deteriorated from 100 to 143days (refer BS section in ARA). Despite this, NWC days improved from 130 to 108days on account of increase in liabilities from 178 to 251 days.
Cash flows negative despite muted revenue growth YoY: Cash flow quality remains poor with negative cash flow of Rs 2.5bn, post Capex and Interest expense.
Auditors/Board remuneration, ESG: S.R. Batliboi & Associates LLP is Auditor and audit fee reduced FY17/18 to Rs 17.7/12.7mn. Board remuneration reduced from Rs 170mn to Rs 162mn. ESG is compliant, no major related parties’ transaction in FY18.
NCC has aggressively spent on equipment and construction accessories. Total additions to the gross block in FY18 - Rs 2.8bn as compared to Rs 1.3bn in FY17.
The incremental capex addition has been on back of 2.7x jump in FY18 order inflow to Rs 253bn YoY, besides upcoming bid pipeline. FY18 order backlog stands at Rs 325.3bn (4.4x FY18 revenue).
Fixed Assets – Aggressive Capex (Rs mn)
Particulars Gross Block Net Block
Comments FY17 Additions Deductions FY18 FY17 FY18
I Tangible Assets Buildings 351 62 35 378 288 303
Plant, Equipment, Construction vehicles and accessories
11,565 2,464 327 13,701 5,114 6,499
Major Capex in construction equipment was non-replacement and to cater to the fresh order accretion of ~Rs 253bn in FY18
Sub-total 13,070 2,829 396 15,503 5,900 7,478 II Investment Property Land 218 111 0 328 218 328 Buildings under lease 302 - - 302 264 259 Sub-total 519 111 0 629 481 587 III Intangible Assets 131 - - 131 23 16 IV CWIP - - - - 13 229 TOTAL 13,201 2,829 396 15,634 5,935 7,723 Source: Company, HDFC sec Inst Research
Capex has been ramped up in FY18 with 2.7x jump YoY to Rs 2.8bn Strong order inflows of Rs 253bn key reason for the aggressive capex
NCC : ANNUAL REPORT ANALYSIS
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Balance Sheet Analysis Rs Mn SNo FY17 FY18 Comment EQUITY AND LIABILITIES SHAREHOLDERS' FUNDS Share Capital 1 1,112 1,201 Issue of 44.7mn shares (FV of Rs 2 each) during QIP Reserves and Surplus 2 33,311 41,215 Subtotal 34,423 42,416
NON - CURRENT LIABILITIES Long-Term Borrowings 3 91 1,185 43 new loans taken from SREI Equipment finance during FY18 and total
o/s Rs 1,172.2mn vs Rs 1.6mn in FY17. (Avg tenor - 27 to 34 monthly installments and int. rate - 8.6% to 11.0%) During FY18 NCC has taken a Rs 500mn term loan from AK Capital Services. (Tenor - 18 months, interest - 10.8%)
Current Maturities 4 393 1,364
Short-Term Borrowings 5 15,283 10,451 WC loan increased from Rs 5.5bn to Rs 9.5bn in FY18. Cash Credit reduced from Rs 9.8bn to Rs 1.0bn.
Deferred Tax Liabilities (Net) 6 (1,354) (1,793) MAT Credit entitlement booked during FY18 amounting to Rs 268.53mn Other Long Term Liabilities 7 754 1,243 Consists of retention money against subcontractors
Long-Term Provisions 8 88 151
Consists of Gratuity provision. Past service cost booked during the year Rs 27.5mn majorly on account of increase in gratuity limit. Discount rate/ Expected return assumptions were unchanged YoY at 10% and 8.25% respectively for FY18. Expected salary increase assumption was lowered from 10% to 5% in FY18. NCC has assumed a higher attrition at 25% in FY18 vs 20% earlier
NCC raised Rs 5.5bn through issuance of 44.7mn shares of FV Rs 2 at Rs 123/sh
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Rs Mn SNo FY17 FY18 Comment
Non-Current Investments 13 10,287 15,110
Increased investment in Nagarjuna Construction Company International LLC, Oman from Rs 1.2bn to Rs 1.9bn and also impairment provision of Rs 200mn has been recognized on the same Recognized impairment provision of Rs 272.3mn against investment in NCC Infrastructure Holdings Mauritius Pte Ltd Recognized impairment provision of Rs 170.5mn against investment in debentures of Tellapur Techno City Private Limited Decreased investment in SNP Ventures LLP from Rs 97.2mn to Rs 21.8mn in FY18 Increased investment in debentures of NCC Infrastructure holdings Mauritius Pte. Ltd from Rs 1,348.7mn to Rs 1,351.2mn In FY18 certain loans to subsidiaries were reclassified by NCC from current assets to Non Current (During the year advance to NCC Urban Infrastructure increased form Rs 3,523mn to Rs 4,209mn in FY18)
Other Non-Current Assets 14 2,535 3,556
Includes interest accrued on loans of Rs 471mn in FY17 vs Rs 1,170mn in FY18 Non Current Retention money increased on account of newer completed projects during the year from Rs 1,677mn in FY17 to Rs 1,833mn in FY18 (These deposits are generally returned on completion of the defect liability period as per the respective contracts)
Subtotal 15 19,238 26,976
CURRENT ASSETS 15 Current Investments 16 - - Inventories 17 15,258 16,956 Inventory has marginally increased from 74days in FY17 to 79days in FY18
Trade Receivables 18 23,501 34,620
Debtors have increased from 100days (Rs 23.5bn) in FY17 to 143days (Rs 34.6bn) in FY18 The sharp increase is on account of (1) Clients holding up part payments of ~Rs 1.0-1.2bn on account of GST related issues not getting fully settled on the balance sheet date; (2) Slow pace of project execution in UP based projects on account of budgetary allocation; (3) 3-4 months pending receivables in Gujarat/ Rajasthan on account of extension/ final reconciliation issues
Cash and Cash Equivalents 19 1,095 659
Short-Term Loans and Advances 20 10,629 10,567 Advance to suppliers increased significantly from Rs 4.8bn to Rs 9.1bn NCC has reclassified certain Loans to subsidiaries from FY18 onwards from Current Assets to Non Current Assets (Rs 5.3bn vs Rs 1.0bn in FY18)
Other Current Assets 21 18,365 16,435 Majorly consists of client retention money of Rs 10.4bn (vs Rs 11.bn in FY17) Indirect tax credit has marginally reduced from Rs 3.8bn to Rs 2.7bn
Subtotal 68,848 79,237
During the year advance to NCC Urban Infrastructure increased form Rs 3,523mn to Rs 4,209mn in FY18 Debtors have increased from 100days (Rs 23.5bn) in FY17 to 143days (Rs 34.6bn) in FY18
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Rs Mn SNo FY17 FY18 Comment CURRENT LIABILITIES Trade Payables 22 28,688 33,882 Payables jumped up from 133days in FY17 to 166days in FY18
Other Current Liabilities 23 9,440 17,025
Mobilization advances increased from Rs 5.7bn to Rs 14.2bn. This is on account of the huge order accretion that has happened in FY18 (Majority of mob. advances are now interest bearing which will form a significant part of the finance cost in FY19-20E irrespective on any control on the borrowings) Advance from customers decreased from Rs 3.1bn to Rs 2.4bn in FY18
Short-Term Provisions 24 280 288 Majorly consists of provisions for compensated absences and the increase is not extraordinary
Subtotal 38,409 51,195 NET CURRENT ASSETS 30,440 28,043 APPLICATION OF FUNDS 49,677 55,019 Source: Company, HDFC sec Inst Research
Mobilization advances increased from Rs 5.7bn to Rs 14.2bn This is also one of the reasons of reduction in bank debt in 4QFY18
Revenue is not strictly comparable with FY17 on account of FY18 revenue being net of taxes. Post adjusting the revenue for non recurring items - gross bonus of Rs 730mn and gross claims of Rs 500mn in FY18, adj. revenue works out to be Rs 74,363mn
EBITDA 6,852 8,549 The net adjustment at EBITDA level to effect the non recurring bonus and claim works out to be Rs -810mn in FY18
Margin (%) 8.7% 11.3% The adjusted margin for FY18 is 10.4%
EBIT 5,731 7,374
Other Income 1,401 1,158
Major items in FY18 (FY17): Int. on Deposits: Rs 84mn (Rs 98mn) Int. on Advances: Rs 516mn (Rs 853mn) Int. on Tax refund: Rs 358mn (Rs 441mn) Miscellaneous Income: Rs 135mn (Rs 69mn) For FY18 total interest received from subsidiaries was Rs 519.5mn (out of Rs 531.6mn booked as interest income) Implied Interest rate on Loans to subsidiary is 9.2%
Finance Cost 3,957 3,789
Major items in FY18 (FY17): Int. on Term Loan: Rs 128mn (Rs 179mn) – Implied interest rate 8.5% Int. on WC & CC: Rs 2,052mn (Rs 2,415mn) – Implied interest rate 15.9% Int. on Mob. adv: Rs 631mn (Rs 321mn) – Implied interest rate 3.2% BG charge: Rs 757mn (Rs 726mn)
EO Items 503 1,066 FY18 – This is impairment provision after netting off profit on investment of Rs 124mn
RPAT 2,255 2,868 If we exclude Rs 810mn of non recurring income and adjust for the exceptional items APAT comes in at Rs 3,123mn in FY18
CASH FLOW FROM OPERATING ACTIVITIES Net Profit before Tax 2,672 3,677 Adjustments for Depreciation & Amortization Expenses 1,121 1,175 Loss on sale of assets and Discarded 23 7 Finance costs 3,957 3,789 Interest income (1,392) (981)
Trade Receivables written off - 115 Receivables worth Rs 115mn (against debtors of Rs 45bn) have been written off. Excluding this the EBITDA margin would have improved 20bps to 10.6%.
Provision of doubtful trade receivables 263 231 Exceptional items 503 1,066 FY18 – This is impairment provision after netting off profit on
investment of Rs 124mn Rental income from investment properties (21) (31) Net forex (gain)/loss 24 (6) OCF BEFORE WORKING CAPITAL CHANGES 7,150 9,042 (Increase)/Decrease in Inventories 1,309 (1,697) (Increase)/Decrease in Trade and Other Receivables (4,923) (10,117) Cash has been stuck on account of GST related issues as well as
slow moving projects in UP, Gujarat and Rajasthan (Increase)/Decrease in Other Assets 188 (4,797) Increase/(Decrease) in Trade Payables 1,244 5,682 Increase/(Decrease) in Other Liabilities (2,565) 7,619 Major cash inflow from interest bearing mobilization advances
received on projects won in FY18 CASH GENERATED FROM OPERATIONS (CFO) 2,404 5,732 Taxes paid (436) (1,263) Against a reported current tax expense of Rs 969mn
NET CASH USED IN OPERATING ACTIVITIES 1,968 4,469
Receivables worth Rs 115mn (against debtors of Rs 45bn) have been written off. Excluding this the EBITDA margin would have improved 20bps to 10.6%
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Particulars (Rs Mn) FY17 FY18 Comments
CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets and other Capital Expenditure (1,350) (3,156) Proceeds from sale of Fixed Assets 64 81 Bank balances not considered as Cash 32 (61)
Net Investment in Subsidiaries/ Associates 312 (562)
In FY18 additional investment in Nagarjuna Construction Company LLC – Rs 761mn In FY18 cash inflow from stake sell in Associate which was completed in FY17 – Rs 200mn
Net Loans (given)/ Received back from Subsidiaries/ Associates 1,141 (686) In FY18 advance to NCC Urban Infrastructure increased form Rs
3,523mn to Rs 4,209mn in FY18 Inter Corporate Deposits 2,546 (139) Interest Received 1,786 900 Against interest income booked Rs 981mn in FY18 (Rs 1,392mn)
Rental Income from investment properties 21 31 Against rental income booked Rs 31mn in FY18 (FY17: Rs 21mn)
NET CASH USED IN INVESTING ACTIVITIES 4,552 (3,593) CASH FLOW FROM FINANCING ACTIVITIES Issue of Shares - 5,413 QIP fund raise of Rs 5.5bn at Rs 123/sh and 44.7mn shares
Net Borrowings incl. W/C (3,068) (2,766) Finance Cost 5,181 (3,444) Dividend and Dividend Tax paid (402) (268) NET CASH FROM FINANCING ACTIVITIES 1,711 (1,065) Source: Company, HDFC sec Inst Research
Aided by a strong EBITDA of Rs 7,739mn, bonus and claims of Rs 810mn and non cash expense (provision and debtor write offs) of Rs 346.0mn against a WC expansion by Rs 3,310mn and a tax outgo of Rs 1,263mn, Operating cash flow came in at Rs 4,469mn.
In FY18 total Rs 4,469mn CFO, net proceeds from funds raised Rs 5,413mn and interest income of Rs 900mn was majorly employed towards (1) Rs 3,076mn towards capex, (2) Rs 3,752mn towards interest repayment, (3) Rs 1,415mn towards investments/ advances to subsidiaries/associates, (4) net debt repayment of Rs 2,766mn and (5) dividend of Rs 268mn. Overall there was a cash deficit of Rs 495mn in FY18.
In FY18 advance to NCC Urban Infrastructure increased form Rs 3,523mn to Rs 4,209mn in FY18
NCC : ANNUAL REPORT ANALYSIS
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Subsidiaries – no meaningful contribution to the bottom line
Consolidated Revenue came in at Rs 83.9bn in FY18, a decline of 6.8% YoY. NCC reported a consolidated profit of Rs 1.7bn in FY18, a gain of 432.2% YoY.
In the consolidated financials, goodwill arising on business combinations has been impaired. FY18 goodwill is Rs 188.5mn (vs Rs 318.7mn YoY).
The consolidated loss will not reconcile completely with individual subsidiary losses in Form AOC-1 on account of (1) Interest cost against parent loans (~Rs 531.6mn) and (2) Diminution in value of investments against subsidiary losses being knocked off on consolidation (~Rs 1.2bn).
Major Subsidiaries – FY18 Losses Company FY18 Losses NCC Infrastructure Holdings Limited (Buildings)
Rs 815.0mn
Nagarjuna Construction Company International L.L.C (Batinah Expressway) Rs 979.0mn
Nagarjuna Contracting Co. L.L.C. (UAE) Rs 640.6mn Al Mubarakia Contracting Co LLC Rs 254.6mn Total Major Subsidiaries losses Rs 3,249.4mn Source: Company, HDFC sec Inst Research
Key Updates - Subsidiaries In FY18 Sembcorp, a customer of NCC, had raised
claims of Rs 2.9bn and USD 9.0mn towards liquidated damages for delay in execution. The matter had been referred to arbitration. NCC’s claims include receivables – Rs 6.5bn and additional 12.0bn for cost incurred along with interest. The customer has filed a counter claim of Rs 10.2bn. The customer had already invoked BG of Rs 3.4bn and NCC was unsuccessful in obtaining a stay against the same. Management
remains confident that no further provisioning is required and the same would get resolved in FY19.
NCC Infrastructure Holdings Limited has provided for Rs 655.1mn against arbitration award in the TAQA case (for Himachal Sorang Power) amounting to Rs 1.1bn. NCCIHL is initiating the process to challenge the award in the Courts of Singapore. Next hearing is scheduled on 2nd Aug 2018.
NCC Vizag Urban Infrastructure Limited (Subsidiary): Development of the project has been delayed due to factors completely beyond the control of the Subsidiary. Costs incurred in relation to the project aggregating to Rs 2.2bn (FY17: Rs 2.2bn), including Rs 1.2bn (FY17: Rs1.2bn) towards borrowing cost, have been presented under ‘Property Development. Subsidiary is confident of resolving the issues in its favor, and also for obtaining all the requisite sanctions and land clearances.
Nagarjuna Construction Co. Ltd. & Partners L.L.C: accumulated losses (excl. FCTR) of Rs 172.4mn (FY17: Rs 171.5mn) and Net Liabilities of Rs 227.4mn (FY17: Rs 225.4mn). Subsidiary shall require continued financial support.
Al Mubarakia Contracting Co. L.L.C.: accumulated losses (excl. FCTR) of Rs 970.6mn (FY17: Rs 715.4mn) and Net Liabilities of Rs 943.3mn (FY17: Rs 697.8mn).Subsidiary shall require continued financial support.
Nagarjuna Contracting Co. L.L.C.: accumulated losses (excl. FCTR) of Rs 879.5mn (FY17: Rs 238.9mn) and Net Liabilities of Rs 606.7mn. Subsidiary shall require continued financial support. Currently there is no project in hand except an ongoing suit with a customer.
Nagarjuna Facilities Management Services L.L.C: during the year the Management has decided to cease the operations and have not renewed the commercial license which had expired in FY09
Total subsidiaries loss of Rs 3,249.4mn
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Compensation Growth In Sync. With Earnings growth Name of the Director Category FY14 FY15 FY16 FY17 FY18 Sri A A V Ranga Raju (MD & CEO) 21 32 57 60 39 Sri A G K Raju Executive Director 11 17 29 31 35 Sri A S N Raju Whole Time Director 11 17 29 31 35 Sri A V N Raju Whole Time Director 11 16 28 30 35 Sri J V Ranga Raju Whole Time Director 18 18 18 18 18 A K H S Rama Raju Whole Time Director 10 10 N.A N.A N.A Total 82 109 161 170 162 % increase 33.6 47.3 5.8 (4.9) % Net Profit growth 175.9 114.8 14.9 13.2 Source: Company, HDFC sec Inst Research We don’t observe any major variances or contrast with respect to managerial remuneration growth over FY14-18 w.r.t growth in profits.
Auditor Compensation – Change in auditors
FY18 financial statements have been audited by S.R. Batliboi & Associates LLP whereas the FY17 financial statements were jointly audited by Delloite Haskins & Sells and M. Bhaskara Rao & Co.
Statutory and Tax audit fee has decreased from Rs 17.7/1.2mn in FY17 to Rs 12.7/1.0mn in FY18 respectively. Certification fee has increased from Rs 0.01mn in FY17 to Rs 1.51mn in FY18.
Contingent Liabilities
Disputed sales tax / entry tax liability for which the Company preferred appeal: Rs 2.5bn in FY18 (vs. Rs 2.4bn in FY17).
Disputed service tax liability for which the Company preferred appeal: Rs 1.0bn in FY18 (same in FY17).
Counter guarantees given to bankers: Rs 614.5mn in FY18 (vs Rs 627.0mn in FY17).
Corporate Guarantees given to Banks for financial assistance extended to Subsidiaries: Rs 7.8bn in FY18 (vs Rs 13.5bn in FY17).
Disputed sales tax / entry tax liability for which the Company preferred appeal Rs 2.5bn in FY18 (vs Rs 2.4bn in FY17).
No RED FLAGS in management/auditor compensation
NCC : ANNUAL REPORT ANALYSIS
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ESG Assessment – Compliant Environment – Since NCC is a services company its
business impact on environment is largely disposal of any hazardous materials as per statutory provisions. Necessary steps have been taken for efficient use of Power, Energy and raw materials. Emissions/Waste generated meet compliance norms to the extent possible and within prescribed limits. NCC has not received any show cause/legal notice from CPCB/SPCBs.
Social - NCC spent about Rs 46.8mn on community development projects under CSR. Swachh Bharat
Abhiyan, Charitable institutions, Education and Safety engineering. NCC has been procuring raw materials like aggregates, bricks etc from small and local producers. For promoting employee well being, regular training are conducted. No complaints received for child/involuntary labour/sexual harassment during FY18.
Governance – has policy in place for stakeholders’ grievance redressal. Different group companies have in-house policy on ethics, transparency and accountability relating to ethics, bribery and corruption in JV, Suppliers, contractors, NGOs etc. NCC has not received any complaints regarding the same in FY18.
NCC : ANNUAL REPORT ANALYSIS
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FY18 Related party transactions - Major transactions (Rs mn)
Particulars FY17 figures in () Subsidiary Associates/ Joint
Ventures
Key Management Personnel and
relatives
Enterprises owned or significantly
influenced by Key Management
Personnel or their Relatives
Comments
Net Loan granted 686.3 (-1,258.0) - - - Loan to NCC Urban Infrastructure Limited increased by Rs
0.7bn from Rs 3.5bn to Rs 4.2bn in FY18
Interest income 531.6 (909.8) - - -
NCC received Rs 478.2mn interest (out of Rs 480.7mn booked as interest income) from NCC Urban Infrastructure Limited in FY18. For FY18 total interest received from subsidiaries was Rs 519.5mn (out of Rs 531.6mn booked as interest income) Implied Interest rate on Loans to subsidiary is 9.2%
Revenue from operations - 603.60 (720.32) - -
Revenue from Ekana Sportz City Private Limited (an associate) came in at Rs 603.6mn in FY18 (vs Rs 720.3mn in FY17)
Sub-Contractors work bills 117.5 (4.2) - - 544.8
(384.4)
FY18 Subcontract cost includes Rs 117.0mn from Aster Rail Private Limited (a subsidiary) (FY17: Nil) and Rs 541.8mn from Jampana Constructions Private Limited (an entity controlled by KMP) (Rs 384.4mn in FY17)
Reimbursement of Expenses 36.67 (97.36)
6.83 (-) - 132.08
(0.14)
Reimbursement of expenses Rs 122.6mn in FY18 to Jampana Constructions Private Limited includes Rs 122.6mn (vs Rs 0.1mn in FY17)
Rent Expenses - - 7.51 (4.49)
99.0 (100.6)
Rent Paid to Sirisha Projects Private Limited Rs 95.0mn in FY18 In FY17 Rs 10.8mn rent was paid to each of Sirisha Projects Private Limited, Ruthvik Estates Private Limited, Narasimha Developers Private Limited, Mihika Agro Farms Private Limited, Lalit Agro Farms Private Limited, Bhuvanesh Realtors Private Limited, Arnesh Ventures Private Limited, Suguna Estates Private Limited and Rs 13.9mn to Shyamala Agro Farms Private Limited
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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