1

TABLE OF CONTENTS

1. BACKGROUND: ..........................................................................................................1
2. PRODUCTS & SERVICES RENDERED: ....................................................2
3. BUSINESS MODEL: .....................................................................................................4
3.5 Core Capabilities: ..............................................................................................4
Engineering, Design and Technology Department (EDTD).........................5
4. BUSINESS ANALYSIS: ................................................................................................5
4.2 Competition: .............................................................................................................6
5. OPERATIONAL PERFORMANCE: .............................................................................6
5.1 Sales and Sales Growth: ............................................................................................6
5.2 PBDIT and OPM: .....................................................................................................7
5.3 Cost Structure: ........................................................................................................7
a) Cost incurred on various activities:.........................................................................7
b) Cost comparison YoY AMJ 09 Vs AMJ 08: ..........................................................8
5.4 Operating Metrics: ....................................................................................................8
6. FINANCIAL PERFORMANCE:....................................................................................8
6.1 PAT Vs NPM.............................................................................................................8
6.2 ROCE and ROE ........................................................................................................9
6.3 Debt -to- Equity Ratio: ..............................................................................................9
7. CAPITAL MARKET PERFORMANCE:.....................................................................10
8. RECENT STRATEGY..................................................................................................10
8.1 Growth Drivers:...................................................................................................10
9. OUTLOOK:...................................................................................................................11
9.1 Indian Economy and NCC: ...............................................................................11
9.2 Construction Industry and NCC: ............................................................................11
9.3 Future Growth of NCC: ..........................................................................................11

1. BACKGROUND:
1.1 Date of incorporation: 1978
1.2 Name of the promoter: Dr AVS Raju, Chairman Emeritus.
Shri R.N. Raju, Whole time Director.
1.3 Location of headquarters: Corporate Office
41, Nagarjuna Hills, Hyderabad - 500
082,
Andhra Pradesh, INDIA.
1.4 Lines of Business: A world - class construction and
infrastructure enterprise
Involved in various business like:
 2

o Buildings and housing

o Transportation
o Electrical
o Water and environment
o Irrigation
o International
o Power
o Metal
o Oil and Gas

1.5 Share holding pattern of NCC ltd as on Quarter Ending June

2009:

Mutual fund institutions have around

25.83 percent of the total share holding. Share Holding Percentage

Foreign Institutional Investors constitute

23.93 percent of the total share holding.
0.07
25.66 24.38

49.89

Indian Institutions
Non-Institutions Held by custodians
Source: Company website,
Cygnus Research

2. PRODUCTS & SERVICES RENDERED:

Division Key Areas Key Strengths Few Projects Executed
Buildings and • Housing • Superior • Satyam
Housing Projects Skills Computers, Hyd
• IT parks • On-time • Indoor
Delivery Stadium, Hyd
 3

Transportatio • Highways • Robust • DMRCL

n • Bridges Engineering Railway line, Delhi
including Talent • Ahmedabad-
flyovers • State of the Vadodara six lane,
art equipment Gujarat

Electrical • Transmiss • Engineering • 100Kms. Long

ion lines and Capability 440 KV
Sub stations • Technology Transmission line,
• Project Orientation AP
Electrification • 33/11 KV Sub
station,
Maharastra

Water and • Water • Diverse • Krishna water

Environment Supply Project Phase 1, Hyd
Projects Management • Sewage
• Water • Rich Talent Treatment plant,
Treatment Resource KAR
Plants

Irrigation • Dams • Robust Joint • Gandikota

• Hydro Venture Kadapa, AP
Electric Power Partnership • SRBC
• Modern Kurnool, AP
Equipment
International • Roads and • High tech • Dualization
Highways innovation and Realignment
• Water • Project of Al Amerate,
Supply and Management Oman
Sewerage Expertise • Sohar Water
Network Network, Oman
Power • Undergro • Value Chain • Parbathi
und Tunnels – EPC contracts Hydro power
• Execution • Timely project, HP
of complete Completion • Gautami
EPC on Thermal Power
Turnkey Basis Plants, AP
Metals • Aluminiu • Engineering • Structural
m and Zinc Capability work for Basic
• Iron and • Technology Oxygen furnace,
Steel Orientation SAIL
• Structural
Work for re-
heating furnace,
SAIL
Oil and Gas • Product • Engineering Started in year
Pipe line jobs Capability 2007.Projects are
still under
 4

• Refinery • Technology execution

Process Orientation
Packages

3. BUSINESS MODEL:
3.1 Value Proposition: A world class construction and
infrastructure enterprise,
which offers quality, timely completion, customer satisfaction,
continuous
learning and enhancement of stake holder’s value.

3.2 Target Customers: The client list of NCCL comprises of many

reputed
organizations in public and private sectors.
Example: Maharashtra State Road Development Corporation.
National academy of Construction, Hyderabad.
Bharat Heavy Electricals Limited,
Bangalore Metro Rail Corporation Ltd., Bangalore

3.3 Distribution Channel: There is no actual distribution channel

involved in the
industry except for the involvement of Licensing Agents (local
governing bodies)
who act as intermediaries between the company and the client.

3.4 Revenue Streams: The main source of revenue for the company
is through the
the execution and completion of the projects, through the share
holders and from
the loans taken from the banks by the company

3.5 Core Capabilities:

• Quality services supported by robust technical capabilities
• Rich project management skills and large, complex project
execution
• Consistency and discipline of Commercial Practices across
business groups
• Increased capacity to execute contracts through the addition of
engineers and technical members
• Expansion of low cost fabrication facilities, engineering and
design centre
 5

• Cost containment through bulk acquisition of raw materials and

optimized procurement costs.
• Minimized asset idling and reduced equipment lease/hire

3.6 Value Configuration: Technological up gradation and

advancement is an
everyday event at NCC. The Company has put in place machinery
and
equipment worth close to Rs. 5800 million to ensure the timely
completion of
its projects at various sites.

Engineering, Design and Technology Department (EDTD)

EDTD plays a vital role in enhancing the development, execution
and
technical capabilities of the Company and provides a competitive
edge for
bidding for complex and technically challenging projects.

EDTD has 35-experienced design engineers / technical personnel

based at

Hyderabad. EDTD is equipped and well versed with use of engineering

software’s like STAAD PRO, PROKON, Visual Modflow, and AutoCAD
2006 etc.

3.7 Partner Network: Sorang Hydro Electric Project: 100 MW plant

NCC is executing part of Engineering, Procurement and Construction
(EPC) contract along with other JV Partners M/s Maytas Infra Ltd and M/s
SSJV Projects Private Ltd.

Partnership with POSCO to enable participation in bids.

3.8 Cost Structure: Majority of the expenses are incurred in terms of

construction and inventory management. Hence the company follows
cost containment through bulk acquisition of raw materials and
optimized procurement costs. Minimized asset idling and reduced
equipment lease or hire.
Revenue share % Q ending Jun
09
Buildings and
housing
Transportatio
4. BUSINESS ANALYSIS: 5 n
22 1
4.1 Segmental Analysis: As on 15 Electrical
Quarter Ending June 2009. 3
5 Water and
• Urbanization has led to the 7 Environment
Source: Annual Report, Cygnus
major contribution of revenue Research Irrigation
from the Building and housing 18
28 3 International
sector.
Power

Metal

Oil and Gas

 6

• The GOI introduced policies aiding public private participation to bridge

the gap between demand and supply of urban infrastructure.
• The planning commission invested over Rs. 2343 billion in water supply
and sanitation sector over five years.

Source: Annual Report, Cygnus

Research
4.2 Competition: Market Share 2009

Nagarjuna Construction Company Limited has Larsen & toubro

ltd
over 5% of the market share when we Punj Lloyd ltd
compare it to the major players in the
organized sector of the Construction 5% 8% JP associates
industry. GMR infra
6% 41%
The company has pre-qualified for potential 6% Simplex ltd
orders in most of the areas. The composition 6% IVRC L infra
of its current order-book position indicates its
ability to bid competitively in several 11% 17% Nagarjuna
segments. con.
Others

Growth % - YoY Comparision

5. OPERATIONAL PERFORMANCE:
14000 60
5.1 Sales and Sales Growth:
Source: BSE, Cygnus
Research Source:
12000 Cygnus 50
Research 40
During the quarter ended March 2009 Company’s 10000
sales witnessed a dip of 12.44% compared to 30
8000
CPLY. 20
6000
10
Fall mainly due to the reduced demand for 4000
0
property, price resets and suspension of sales. 2000 -10
0 -20
The real estate sector bore the brunt of JFM AMJ JAS OND JFM AMJ
Rs Mn

instability. 08 08 08 08 09 09

There was loss of confidence in the local 2008-09 2007-08 Growth %

economic market.
 7

Source: Annual Report, Cygnus

Research

PBDIT and OPM - YoY

5.2 PBDIT and OPM: comparision
1200 12
The Company for the quarter ended June 2009
1000 10
witnessed rise in the PBDIT (Rs 1051.64 mn)
compared to the CPLY (Rs 924.23 mn). 800 8

600 6
The OPM of the Company stood at 10.51% for
the quarter ended June 2009. 400 4

200 2
The PBDIT has seen an increasing trend in 2008-
0 0
09 when compared to last year.
JFM AMJ JAS OND JFM AMJ

%
Rs Mn
08 08 08 08 09 09
During the quarter ending March 2009 we see a
fall in the PBDIT mainly due to the increase in PBDIT 2008-09 PBDIT 2007-08
the expenditure on sub-contractors bills. OPM 2008-09
Source: BSE, Cygnus
Research
Cost Contribution Q ending Jun
09

11.70
9.08
4.54 2.61

31.83 5.85
1.97

27.91
1.27

Raw M aterials Sub Contract Charges

Other Construction Expenses Labour Charges
Employees Cost Stock In Trade & WIP
Other Expenditure Depreciation

5.3 Cost Structure: Source: BSE, Cygnus

Research
a) Cost incurred on various activities:
The Company’s major cost contributors are Sub contract charges and Raw
material expenses. Both together constitute nearly 60 percent of the total
cost for the company.
The Sub contractors work bills and the consumption of raw material stood at
Rs 3,186.62 mn and Rs 2793.46 mn respectively

Source: BSE, Cygnus

Research
 8
YoY Cost Comparision

4000.00
b) Cost comparison YoY AMJ 09 Vs AMJ 08: 3500.00 AMJ 08
3000.00 AMJ 09
2500.00
We see a significant fall in the Raw material cost
2000.00
from Rs 3607.08 mn AMJ 08 to Rs 2793.46 mn 1500.00
AMJ 09. 1000.00
500.00
The fall in the raw material cost can be 0.00

Rs Mn
attributed to the cost containment through bulk

xp
at

n
ee gs
p

st

th I P
tr rgs

io
Ex
acquisitions, optimized procurement costs and

ad Co

ep r E
hr

at
h
aw

C
La ct n
Co t C

ci
&
s
minimized asset idling.

re
r
R

e
Em ou
ac

O
oy
ns

b
tr

Tr

D
pl
on

In
C
The fall in the cement and steel prices during

r
th
ub

ck
O
S

to
the previous months also lead to the reduction

S
in cost.

Source: BSE, Cygnus

Research

Order Booking Trend

5.4 Operating Metrics:
160000
There is continuous rise in the Order books for
140000
Nagarjuna Construction Company limited.
120000
The Planning Commission envisaged an outlay 100000
of about Rs. 14000 bn during the 11th five year 80000
plan for infrastructure development. 60000
40000
Real estate segment throws opportunity of
effective construction investment above Rs. 20000
1000 bn over the next five years. 0
Rs Mn

JFM 07
AMJ 07

OND 07
JFM 08
AMJ 08
JFM 09

JAS 08
AMJ 09
JAS 07

OND 08
Reflection of the same can be seen in bulging
order book position of the company. Orders Book

PAT Vs NPM
Source: Quarterly Press Release,
PAT
Cygnus
NPM
Research
600 4.00
3.90
500
3.80
6. FINANCIAL PERFORMANCE:
3.70
400
3.60
6.1 PAT Vs NPM
300 3.50
3.40
200
3.30
3.20
100
3.10
0 3.00
JAS 08
JFM 08

AMJ 08

JFM 09

AMJ 09
OND 08
Rs Mn

%
 9

During the quarter ended March 2009 the PAT of the Company was Rs. 367.3
Mn (Rs. 489.1 Mn CPLY).

Though there was a rise in the interest and tax payments, the company was
able to maintain the NPM close to 3.5 percent mainly by the steps taken to
cut down the operating expenditure and also the fall in the raw material
consumption expenditure.( Rise in PBDIT)

6.2 ROCE and ROE Source: BSE, Cygnus ROCE and ROE
Research 42.00
39.75
Even though the Company is on a stable growth 38.29
37.00
path we do see a fall in the ROE.
32.00
This can be attributed to the decrease in the 28.97
proposed dividend of the company. The 27.00
company announced a dividend of Rs 251.74 22.00
mn for year ended March 2009(Rs 297.49 mn in
March 2008.) 17.00

12.00 11.88
The fall in ROCE is mainly because of the 9.98
8.88
temporary suspension of few projects in the real 7.00
estate segment due to the slowdown. 2006-07 2007-08 2008-09
%
ROC E ROE

Source: Annual Report, Cygnus

Research
Debt -to- Equity Ratio
35000 1.95
6.3 Debt -to- Equity Ratio: 1.90
30000
1.85
The company has been aggressive in financing 25000 1.80
its growth with debt. The loan fund has
1.75
increased from Rs 8938.27 mn (FY 08) to Rs 20000
1.70
12438.83 mn (FY 09).
15000 1.65
The amount raised through Shareholders fund 10000 1.60
has almost remained constant with Rs 457.70 1.55
5000 NCC and Sensex
mn (FY 09) and Rs 457.68 mn (FY 08). 1.50
110
Rs Mn

0 1.45
The company’s intense activity in the BOT space 100 2006-07 2007-08 2008-09
required regular infusion of cash.
%

90 Total Equity Debt DER

80
70
Source:
60 BSE, Cygnus
Research
50
40
Base Index 100

30
Jun-09
Sep-09
Aug 08

Nov 08
Dec 08

Apr 09
Jul 08

Oct 08

Jan 09
Feb 09
Mar 09

May 09

NC C stock Sensex
 10

7. CAPITAL MARKET PERFORMANCE: Source: Annual Report, Cygnus

Research
There is room for steady gains despite the fall. There is a high degree of
clarity on revenue and earnings growth.

Nagarjuna Construction has a well diversified business model as it undertakes

construction contracts in several segments.

There has been a rising trend in the share of irrigation and water supply
projects. The thrust on infrastructure during the eleventh planning
commission should provide opportunities for healthy growth in order book
and revenues.

Source: BSE, Cygnus

Research
8. RECENT STRATEGY

8.1 Growth Drivers:

• The US Energy Information Agency (EIA) estimated that the world’s
net electricity generation is expected to grow 85percent from
2004(16 billion kilowatt hours) to 2030(30 billion kilowatt hours).
• In 2008, the world’s urban population outstripped the rural
population for the first time ever. According to UN Habitat report, in
India half the population is expected to live in cities by 2041.
• India suffers from a housing deficit of over 25 million units which is
growing. A massive investment of Rs 3613180 Million is required to
cover this deficit.
• The country’s water supply and sanitation market will report better-
than-ever returns supported by two emerging realities: One, the
need to provide access to water and sanitation to the rural
population; Two, most of the urban water and sanitation system
are over a century old.
• Water supply and sanitation market require replacement with an
investment of over Rs 1380000 million over the decade.
• India’s realty market will reach a mind-boggling 40 percent CAGR
with a market potential of Rs 2760000 million by 2010.

8.2 Value Drivers: The Company has created a business model

relevant for all market cycles through the following initiatives:
• Retained the company pre-eminence through quality services
supported by robust technical capabilities, rich project
management skills and large, complex project execution.
• Improved consistency and discipline of commercial practices
across all business groups.
• Increased the capacity to execute contracts through the addition
of engineers and technical members on the one hand and the
 11

expansion of low-cost fabrication facilities, engineering and design

centre on the other.
• Strengthened the balance sheet through debt optimization and
net worth accretion
• Reduced overhead expenses as a percent of revenues through
optimization leanness.

9. OUTLOOK:

9.1 Indian Economy and NCC:

• Indian economy is the fastest growing economy after China.
• Changing composition of GDP: Reduced dependence on
agriculture and growing industrial and services sector.
• Next phase of growth expected to come from rural markets: Per
capita income grew by 50% over the last 10 years
• Among the world’s youngest nations with a median age of 25.
(Source: World Bank, Planning Commission, MoF)

9.2 Construction Industry and NCC:

• The Planning Commission of India published the 11th Economic
Plan in 2007 and set aside $492bn for infrastructure projects.
• Roads: Investment to pick momentum through award of new BOT
projects.
• Irrigation: Projects driven by state governments.
• Power: Private sector capacity addition to bolster growth
• Water and Urban Infrastructure: JNNURM investments through
Urban Local Bodies.
• Others: Railways, Ports, Airports, Oil and Gas, Mining are primarily
government driven.

9.3 Future Growth of NCC:

• Among the top 5 construction companies in India in terms of
revenue.
• Demonstrated ability to bid for and win large project
 Devadula Lift Irrigation Scheme: Rs 9,246 Mn
 SAIL-IISCO expansion project at Burnpur, West Bengal: Rs
10,904 Mn
• New divisions to drive growth in the next 3-5 years
• New divisions to contribute 12 percent of revenues in FY 09 and
constitute 18 percent of the outstanding order book as on Jun 30,
2009.
• Partnerships such as POSCO enable participation in bids and create
higher entry barriers for competitors in the industry.
 12

• 17 projects planned in the Real Estate segment. 12 projects are

ongoing currently.
• Seeking to strengthen foothold in the International business.