The construction firm NCC Limited has proved to be a bad bet for the investors. The company's stock price has more than halved since hitting its 52-week high of Rs 119.20 on May 27, 2019. It has fallen 57 percent since then to trade currently at Rs 51.30. To put it in perspective, a Rs 1 lakh invested in the firm on May 27 would have been reduced to Rs 43,000 currently.

Share Market Live

NSE

The stock crashed in May this year after the newly-formed YS Jaganmohan Reddy government scrapped projects sanctioned by Chandrababu Naidu-led Telugu Desam Party (TDP) government after coming to power, including some projects of the firm.

The Reddy-led government in Andhra Pradesh issued orders to stop engineering works and cancel projects that had not yet started despite getting approval before April 1, 2019.

"We understand that the new government is considering to cancel work orders issued prior to April 1 but not grounded. If this were to happen, work orders approximately worth Rs 6,100 crore issued to our company are likely to be cancelled," the firm said in a statement on May 31.

Reacting to the development, the firm's share price eroded 16.33 percent on May 31. The stock has fallen 42 percent since the beginning of 2019 and 56 percent since May 31.

The stoppage of work in Andhra Pradesh took a toll on NCC's financial performance in the first quarter of the current fiscal. The company reported a 21.55 percent fall in net profit at Rs 81.32 crore for the June quarter as against a profit of Rs 103.67 crore a year ago on a standalone basis. The Hyderabad-based construction firm reported a turnover of Rs 2,212.70 crore in Q1 as against Rs 2,389.14 crore Y-o-Y, down 7 percent.

For Q2, execution will be partially disrupted due to the stoppage of execution in Andhra Pradesh projects and heavy monsoon, said Centrum Broking in a report. Earnings before interest, taxes, depreciation and amortisation (Ebitda) margins are also likely to contract led by lower absorption of fixed costs amid lower revenues, it said, adding that this will lead to a sharp decline in its net profit.

The brokerage expects NCC’s revenue to decline sharply by 39 percent in Q2 on a Y-o-Y basis. It expects Ebitda margins for construction companies to contract from 30-180 bps Y-o-Y due to various reasons, including adverse revenue mix and lower absorption of fixed costs due to weak revenue growth.

Disclaimer

: CNBCTV18.com advises users to check with certified experts before taking any investment decisions

First Published:Oct 7, 2019 1:00 PM IST