Robust order-book

Since the beginning of the year, Nagarjuna Construction bagged orders worth Rs 594 crore.

Water supply-based projects, which includes a Rs 100-crore order from Gujarat Water Resources Corporation, for laying the pipeline for lift irrigation, constitute over 60 per cent of the orders (in value terms).

The company's order-book is now at Rs 1,866 crore. The average completion period of these projects is two years.

The company has also given a revenue guidance of Rs 900 crore for the financial year 2004-05. It also expects a per share earnings of Rs 36-38 for the same period.

These factors will enable Nagarjuna Construction to maintain its revenue and earnings growth for the next couple of years.

Change in revenue mix

The company gets its revenue from a basket of segments. In 2003-04, the road segment contributed about 35 per cent of the revenue; industrial structures and buildings 28 per cent; projects involving water supply 22 per cent; and electrical and power segment, the balance.

In FY'05, however, the company may witness a change in the revenue mix. The share of water supply projects in the current order book is 33 per cent; buildings constitute 37 per cent; roads 19 per cent; and electrical and irrigation projects the balance.

This, in turn, may improve Nagarjuna Construction's profit margins, as water projects offer relatively higher margins than roads.

Growth prospects

The company has robust prospects for growth as far as revenues go, given that 85 per cent of the projects in North-South East-West (NS-EW) road corridor is yet to be contracted. The company has bid for several of NS-EW corridor projects.

In the six months period ending June 30, no major packages in the NS-EW corridor were contracted. The National Highways Authority of India (NHAI), however, expects to complete the tendering process of these projects by March 2005.

The size of packages under the NS-EW corridor projects, which comes under National Highways Development Project (NHDP), is larger than that offered under the Golden Quadrilateral project.

Nagarjuna Construction's expertise in executing BOT road projects is also likely to bolster its revenue prospects as it has pre-qualified itself for national highways (10,000 km non-NHDP road projects), which are likely to be contracted out under Build-Operate-Transfer (BOT) basis.

The company is now executing the Rs 250-crore Bangalore-Maddur expressway project, on BOT basis.

The government's emphasis on irrigation and the steady increase in government's spending on water supply projects is also likely to aid the company's revenue prospects.

A major risk companies in the construction industry face is the sharp increase in the cost of raw materials.

Since most of the NCC's projects carry an in-built escalation clause, it insulates them from any sharp swing in the price of key inputs.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page