Key Takeaways
- You can buy NCC at ~1x book value and target a 15x FY28 EPS multiple.
- Revenue fell 13% YoY in Q3FY26, but the order book now equals 4.5x trailing revenue.
- Leverage rose to 0.40 D/E – a timing effect that should normalize by FY27.
- Margin recovery and higher execution rates are expected to drive 10‑15% revenue growth FY27‑28.
- Buy rating with a Rs200 target price, implying ~20% upside from current levels.
The Hook
You missed the warning sign in NCC's latest numbers—here's why it matters now.
Why NCC's Revenue Decline Mirrors a Sector‑Wide Slowdown
Q3FY26 saw NCC's standalone revenue slide 13% YoY, a dip that aligns with a broader construction lull caused by delayed public‑sector spending and higher input costs. The slowdown is not unique to NCC; peers such as Tata Projects and Adani Infrastructure reported double‑digit revenue contractions in the same quarter. Historically, when the sector experiences a trough, the most diversified contractors rebound fastest because they can re‑allocate resources across building, water, irrigation, and transportation pipelines.
Understanding this context matters because a temporary revenue dip does not automatically translate into a long‑term earnings erosion. The key is whether the order intake remains robust enough to fuel the next growth cycle.
How NCC's Rs796 bn Order Book Positions It for FY27‑28 Growth
The order book, now valued at roughly Rs796 bn, is equivalent to 4.5 times NCC's trailing twelve‑month (TTM) revenue. That depth is rare in a market where many contractors operate with order‑to‑revenue ratios below 2x. The book is diversified across four verticals:
- Buildings: Urban housing projects worth ~Rs300 bn, slated for mobilization in FY27.
- Water & Irrigation: Government‑backed schemes totaling ~Rs150 bn, with payments tied to milestone completions.
- Transportation: Highway and rail contracts worth ~Rs200 bn, many already in the execution phase.
- Other Infrastructure: Renewable‑energy support works and ancillary services accounting for the remainder.
When an order book is this sizable, the lag between award and cash realization shortens, allowing earnings to accelerate once mobilization turns into execution. The company's recent earnings call highlighted that mobilization advances have already been received on several flagship projects, indicating that cash inflows will improve before the FY27 reporting window.
Leverage Spike: Timing Issue or Structural Risk?
Leverage rose to a debt‑to‑equity (D/E) ratio of ~0.40 in the quarter, up from 0.28 a year earlier. The report attributes the increase to two timing‑driven factors:
- Delayed receipts from earlier contracts, which push short‑term cash needs higher.
- Higher working‑capital demand during the mobilization phase—materials, labor, and equipment are being pre‑positioned before revenue can be booked.
For investors, the crucial question is whether this debt level is a one‑off blip or a sign of deteriorating balance‑sheet health. Historical patterns show that NCC’s D/E typically reverts to the 0.25‑0.30 band within six to nine months as payment cycles normalize. Moreover, the company maintains a comfortable interest‑coverage ratio (>5x) even at the elevated leverage, reducing the probability of a credit crunch.
Margin Recovery Roadmap: From 9MFY26 Softness to FY28 Normalization
Operating margins contracted to 6.5% in the latest quarter, down from 9% a year ago. The primary drivers were higher material inflation and a temporary dip in billings. However, the management’s guidance suggests a systematic margin recovery:
- Improved procurement contracts that lock in lower cement and steel prices for FY27‑28.
- Scale efficiencies from the growing order book—fixed overheads spread over a larger revenue base.
- Enhanced project‑management discipline, reducing rework and schedule penalties.
Analysts model a margin expansion to 8.5% by FY28, which, when combined with the projected 10‑15% revenue growth, translates into a 30‑35% EPS upside versus FY26 levels.
Investor Playbook: Bull vs Bear Cases for NCC
Bull Case
- Order book depth provides a runway that outpaces peers, driving revenue CAGR of 12% through FY28.
- Margin normalization lifts FY28 EPS to Rs13.30, supporting a 15x FY28 multiple and a Rs200 target price.
- Leverage normalizes to ~0.30 D/E, reducing financial risk and freeing cash for dividend growth.
- Valuation at ~1.0x book value offers a margin of safety; any upside from re‑rating adds extra reward.
Bear Case
- Prolonged payment delays from government contracts could keep leverage elevated, pressuring cash flow.
- Material cost inflation resurges, eroding margin recovery assumptions.
- Execution bottlenecks—labor shortages or regulatory hold‑ups—could slow revenue pickup.
- In a worst‑case scenario, EPS growth stalls, pushing the 15x multiple to 12x and capping upside at ~10%.
Given the current risk‑reward profile, the “Buy” stance hinges on the expectation that execution will accelerate in FY27, margins will normalize, and leverage will revert to historic norms.