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Nagarjuna Construction up on high expectations

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Market players betting on flow of orders, BOT, BOOT projects

C.R. Sukumar

Hyderabad, March 17

The Nagarjuna Construction Company Ltd (NCC) stock has been witnessing improved trading volumes and sharp rise in price during the last month or so. The stock rose over 20 per cent from February 1 from less than Rs 310 to around Rs 380 on Thursday on both the BSE and the NSE. The daily trading volumes surged up to a high of 16.6-lakh shares once from a low of 29,000 shares during this period.

The renewed buying at the counter is being attributed to a combination of factors that include positive expectations of the market on the company's sound flow of orders and high contribution and margins from BOT (build, operate and transfer) and BOOT (build, operate, own and transfer) projects.

Merrill Lynch had said it expects the earnings of NCC to grow at around 53 per cent compounded annual growth between FY06 and FY08. Further, Merrill Lynch said it expects order book growth at 22 per cent and the sales at 46 per cent during this period.

Broking circles are attributing the increased expectations on sound fundamentals of the company coupled with increased spending of Government on infrastructure and increase in number of PPPs (public private partnership) in BOOT and BOT projects.

Of course, the stock is also partially fuelled by the rumours that the company might consider a bonus issue, mostly in the ratio of 1:1. On a paid-up equity capital of Rs 15.9 crore, the company's current reserves are very high at Rs 308.73 crore as at the end of March 2005.

Other major positive developments include stock split from Rs 10 share to five shares of Rs 2 each, encouraging financial performance for the nine months period of current fiscal with improved margins, global issue of $120 million and strong order book position of over Rs 5,700 crore.

When contacted, the NCC Vice President (Finance), Mr Y.D. Murthy, refused to comment on the market expectations on the company's turnover and margins for the next couple of years and also on the market rumours pertaining to bonus issue.

However, he told

Business Line

that the company has been reporting healthy growth of over 50 per cent in topline during the last three years and is poised to meet the guidance of Rs 1,800 crore of business for the current fiscal.

Stating that the company is highly bullish on the opportunities in the real estate business, he said the company has around 130 acres of prime land in various major cities across the country. While the book value of these lands stood at Rs 24 crore, their current market value could be over Rs 150 crore, he said.

Aimed at effectively addressing the issue of dilution of earnings owing to BOT projects, the company has floated four special purpose vehicles (SPVs) to execute these BOT projects. "A lot more such SPVs will be floated going forward to execute the BOT projects," Mr Murthy said.

Related Stories:
Nagarjuna bags Rs 165-cr orders from NHAI, TN
Nagarjuna Construction prices GDR at $ 5.11
Nagarjuna Construction bags National Games contract

(This article was published in the Business Line print edition dated March 18, 2006)
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