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Nagarjuna Construction

Nagarjuna constructions - Results update.

Revenues of the company for the current quarter were ahead of expectations, registering 27% growth in Q1FY09.Operating margins for Q1FY09 stood at 9.4%,slightly lower than estimates. This was impacted by higher raw material prices.Net profit for the current quarter registered a marginal increase of 3% due to steep increase in the interest charges as well as lower operating margins.

At current price of Rs 130, NCC is trading at 16.9x and 13.8x on P/E multiples and 7.4x and 6.4x on EV/EBITDA multiples on FY09 and FY10 estimates respectively. Adjusted with BOT valuations, it is trading at 10.5x and 8.6x on P/E multiples on FY09 and FY10 estimates.

To factor in the increasing interest rate scenario and lower than expected growth in profitability going forward, we lower our target valuation multiples for the company going forward. Investors can buy on declines with a price target of Rs 190, the targed based on sum-of-the-parts methodology based on FY10 estimates.