Nagarjuna to unlock value - Long term ~ Investing In Value And Multibagger Stocks

Thursday, March 6, 2008

Nagarjuna to unlock value - Long term

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Hyderabad: In the next 18-24 months, Nagarjuna Construction Co. Ltd (NCC) plans to sell a stake in its subsidiaries NCC Infrastructure Holdings Ltd (NCCIHL) and NCC Urban Infrastructure Ltd (NCCUIL) to either private equity (PE) firms or the public in an effort to "unlock value", a senior executive of NCC has said.

This "will be done once these subsidiaries attain considerable scale," Y.D. Murthy, senior vice-president of NCC, said. NCC ended 2006-07 with revenues of Rs2,900 crore and a net profit of Rs151.9 crore. In the first nine months of 2007-08, it returned a net profit of Rs109.32 crore on revenues of Rs2,220 crore.

NCCIHL is in the business of building roads, power, seaports and airports, while NCCUIL looks after commercial and residential real estate.

Last year, NCC raised $100 million (Rs399 crore today) by selling an 8.54% stake to PE firm Blackstone Group. Blackstone has also announced that it will invest another $50 million in NCC subject to approval from India's Foreign Investment Promotion Board. NCC plans to use these funds to invest in the BOT (build, operate and transfer) projects and other infrastructure projects being developed by its subsidiaries.

Other significant investors in NCC include Rakesh Jhunjhunwala (2.19%) and his wife Rekha Rakesh Jhunjhunwala (3.39%), and financial institutions (51.66%). The promoters own a 24.76% stake.

NCCIHL currently has five special purpose vehicles (SPVs) in the roads segment, with projects worth Rs2,503 crore. It has two SPVs in the power segment with 380MW of projects worth Rs2,050 crore. Companies in the infrastructure business usually structure individual projects as separate companies or SPVs because this facilitates fund raising.

In the seaports segment, NCCIHL has one SPV implementing the Rs1,500 crore Machilipatnam port project. It was also recently awarded two airport development projects at Gulbarga and Shimoga in Karnataka worth Rs200 crore.

"In all, NCC Infra has a portfolio of eight BOT projects with total value of Rs6,253 crore. We are targeting to grow this portfolio to 12-15 projects in the next 18-20 months," said Murthy. The company has already pumped in equity of Rs557.25 crore into these SPVs.

Murthy added that NCCUIL has total land reserve of around 600 acres, of which 286 acres is currently under development. "We are targeting to reach a land bank level of 1,000 acres in the next two years. We are expecting this subsidiary to post a turnover of Rs300-350 crore during next fiscal and reach a level of around Rs600 crore in the next two years," he said.

Shares of NCC lost 1.64% to end at Rs278.65 on the Bombay Stock Exchange on Tuesday. The Sensex gained 0.15%.

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