The Hindu Business Line : Stock split, order book boost Nagarjuna Construction

NAGARJUNA Construction Company has been attracting market interest in the past few weeks. The share price has been moving up on the back of increased trading volumes. In the past week, the stock has gained about 9 per cent and by 17 per cent in the last one month.

The increased trading volumes could partially be attributed to the stock turning ex-stock split. The encouraging financial performance for the first half of this fiscal along with a strong order book position of over Rs 5,100 crore are also cited as reasons for the market interest. The company is also planning to raise about $120 million through the issue of foreign currency convertible bonds (FCCB).

According to the company officials, the FCCB issue proceeds would be utilised for the BOT/BOOT projects in the road and power projects to be executed by the company. A part of the proceeds would also be deployed towards working capital requirements.

Analysts attribute the market interest towards the company to the 52 per cent revenue growth in the latest quarter and strong order book position. According to them, the company has always had a comparatively low operating margin vis-à-vis its peers. In this context, the improvement in operating margin from 8 per cent in the quarter ended September 2004 to 10.3 per cent in the quarter ended September 2005 is positive feature, the analysts point out.

The increased profit margins during the first half of this fiscal were attributed mostly to the change in order book mix. According to the official, the projects executed during the first half had higher margins. Further, the prices of steel and cement were low during the first half of this fiscal compared to the corresponding period of the last fiscal. Stating that the situation of improved margins might continue for a few more quarters, the official said most of the construction companies with strong order book position were quoting high for new projects since they need not resort to undercutting now.

Allaying apprehensions that a rise in steel and cement prices could affect the profit margins in future, the official said the cost escalation clause in the infrastructure projects insulate up to 70 per cent, while the balance is covered by long-term procurement arrangements entered into with the steel and cement manufacturers.

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