Is it a good time for investors to buy NCC? as it is expected to surpass Rs. 100 levels in two months
Nagarjuna Construction Company was a non-descript company for a long time. The stock later christened itself as NCC Ltd and came into the limelight after the late Rakesh Jhunjhunwala had picked up a stake in the company many years back. Since then it has been a blow hot and blow cold kind of journey for the stock. Now, in the last few months, the stock has once again gained traction after it got a slew of orders for infrastructure projects. The stock of NCC was up sharply since the start of 2023 and now looks all set to cross the psychological Rs. 100 mark. One of the main triggers for the stock in the recent past has been the big order flows, that are a multiple of its annual sales revenues.
In a recent exchange filing, NCC Ltd informed the exchange that it had received 5 new orders aggregating to Rs. 3,601 crore in the month of December 2022 alone. Out of these five orders, 2 orders worth Rs. 1,871 crore pertain to the water management division of NCC Ltd. There are two more orders worth Rs. 993 crore which pertain to infrastructure orders related to the Electrical Division of the company. The last order worth Rs. 738 crore pertains to the Irrigation Division of the company, and that has traditionally been a major focus area of the company. Most of these are orders are secured from State Government Agencies and there are not captive orders received from within the group in this list of orders.
These contracts are engineering, procurement and construction (EPC) contracts with time spans ranging from 18 months to 36 months. Effectively, these are short to medium term orders and not long term orders and promise a lot of revenue traction over the next 3 years for the company. Not surprisingly, the stock is up sharply in the year 2023 so far, after a rather impressive return of 27.5% in the year 2022. The surge in the stock price of NCC has also been accompanied by a surge in volumes, which makes this rally a lot more credible and dependable. In fact, one day volumes in terms of volumes were close to 5% of the total outstanding shares of the company, showing good volume traction on NCC Ltd.
The stock also has technicals in its favour, apart from the fundamentals. For instance, the stock is already trading above its 50-day, 100-day and 200-day moving averages, which is a signal of medium term strength in the stock and a clear upward direction for the stock. At a P/E ratio of less than 10X, the stock is fairly reasonably priced when you compare with other like infrastructure companies in the similar space. However, the RSI is not giving too much of an indication of being under priced and that may be a short term challenge. The stock is also rising in anticipation that the Union Budget may place an enhanced focus on spending in the infrastructure sector and give capex a boost through the infrastructure multiplier effect.
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