Nagarjuna Construction Company Limited (NCC) is engaged in construction and project development activities. At present the company has 11 verticals comprised of the following: building and housing, transportation, electrical, water and environment, irrigation, railways, international, power, metals, oil and gas and mining.
Over the last five years (2004-2009), the company's income and profit after tax (PAT) have grown at a compounded annual growth rate (CAGR) of 40.81 per cent and 37.27 per cent respectively (annual results for FY10 are not yet available in our database). Over the same five-year period, the debt:equity ratio has been at reasonable levels: at the end of 2009 it stood at 0.74 times. However, the company's return on net worth (RONW) has continuously declined from 24.22 per cent in 2005 to 9.51 per cent in 2009.
The quarterly result for the first quarter ended June 30, 2010 shows that the company's net profit (on standalone basis) was up at Rs 41.39 crore from Rs 38.22 crore in the corresponding quarter last year. Total income increased 8.52 per cent to Rs 1,087.77 crore from Rs 1,002.40 crore during the same period.
The company is currently witnessing a rise in its order intake, which will lead to higher revenue growth in future. Further, it is entering into new Balance of Plant (BOP) works at various power plants coming up in the country. This will strengthen the business of the company's power vertical. Being in the infrastructure-related segment, the company is likely to benefit from increased government spending over the next five to seven years. Hence the company's medium-term prospects appear to be bright.
On the valuations front, the company's current P/E is 18.28 which is much lower than its median P/E for the last five years: 25.44. However, its PEG ratio is quite high at 1.25.
In view of the company's high PEG ratio, we suggest that you buy the stock when prices fall to more reasonable levels and hold it for at least three to five years.
