ICICI Securities Retail Equity Research has issued a BUY call on NCC Ltd. despite a challenging Q2FY26 showing, underscoring long-term growth potential tied to its robust order book and diversified infrastructure portfolio. The company faced operational headwinds from extended monsoons and delayed project pickups, resulting in weaker revenue and profit performance. However, a strong order backlog of over Rs 64,000 crore, healthy bid pipeline, and strategic projects like Smart Meters and major road infrastructure underpin robust earnings recovery prospects. Target price is adjusted to Rs 235 from Rs 275, factoring in earnings downgrade but maintaining confidence in execution improvement and margin expansion ahead.

Q2 FY26 Performance Snapshot

NCC reported a weak quarterly performance with consolidated revenue of Rs 3,726 crore, down 16.2% year-over-year (YoY), largely due to sluggish project execution exacerbated by prolonged monsoons and elongated payment cycles. Earnings before interest, taxes, depreciation, and amortization (EBITDA) plunged 30.8% YoY to Rs 277.5 crore, compressing margins by 158 basis points to 7.4%. Adjusted profit after tax (PAT) declined sharply by 37.1% YoY to Rs 101 crore, reflecting operational challenges. Despite the near-term softness, operational resilience was evidenced by the maintenance of a diversified execution portfolio across building, roads, water, mining, and electrical segments.

Robust Order Book and Bid Pipeline

The company’s steadfast foundation lies in a substantial standalone order book of Rs 64,326 crore, representing 3.5 times the trailing twelve months (TTM) revenue, signaling extended revenue visibility. The consolidated order book stands at Rs 71,957 crore. Notably, the management indicated a sizable bid pipeline worth Rs 2.5 lakh crore for FY26, fortified by L1 positions valued around Rs 1,500 crore. Order inflows in the first half of FY26 totaled Rs 17,420 crore, reflecting steady project wins. The order book segmentation reveals strong exposure with:

Execution Challenges and Management Outlook

Weak execution in Q2 is attributed to prolonged monsoons, delayed government payments especially under Jal Jeevan Mission (JJM) projects, and slow pick-up of projects awarded at the end of FY25. Payment delays impacted cash flows, with outstanding receivables hovering around Rs 1,700 crore, affecting liquidity and execution cadence. The management has prudently withdrawn formal revenue and margin guidance for FY26 due to limited visibility on execution and payment timelines but anticipates better recovery momentum in the second half of the fiscal year. They expect order inflows to reach Rs 22,000-25,000 crore in FY26 and indicate an achievable lower margin band of about 9%.

Strategic Project Highlights

Two marquee projects underscore NCC’s potential for significant earnings leverage:

Smart Meters Project: NCC serves as the EPC contractor for three major smart meter projects valued close to Rs 8,000 crore, heavily concentrated in Maharashtra (Rs 5,700 crore) and Bihar (Rs 2,300 crore). The company has invested Rs 300 crore till H1FY26 with plans for an additional Rs 280 crore over the next 1 to 2.5 years, providing stable earnings visibility beyond conventional construction revenues.

Road Infrastructure Projects: Execution on Goregaon-Mulund Link Road (GMLR) and Versova-Dahisar Link Road (VDLR) projects was stalled due to regulatory delays but is poised to recommence, enhancing revenue visibility in coming quarters.

Financial Metrics and Projections

ICICI Securities forecasts revenue CAGR of 8.9% over FY25-27, with a recovery trajectory starting Q4FY25. EBITDA margins are expected to expand gradually, projected at 8.59% against 9.1% in FY25, driven by improved execution and operational efficiencies. Earnings CAGR is anticipated at 11.4% in this period.

Key financial highlights:

The stock’s price-to-earnings (PE) ratio is expected to compress to 12.4x by FY27E, reflecting valuation re-rating with earnings growth and risk mitigation.

Capital Structure and Liquidity

As of Q2FY26, NCC reported total debt of Rs 2,115 crore, up from Rs 1,852 crore in Q1, with net debt increasing correspondingly to Rs 1,890 crore. The debt-to-equity ratio rose marginally to 0.28x, signaling a manageable leverage profile. Capital expenditure during the quarter was Rs 77 crore, with a cumulative Rs 169 crore spent in H1FY26, underscoring ongoing investments in growth projects. Working capital stood elevated at Rs 5,406 crore, representing 33% of turnover, up slightly from 30% in Q1, largely driven by elongated receivables.

Risks

Persistent execution delays due to weather or regulatory hurdles could further pressure revenue recognition and margins.

Prolonged slowdowns in government project payments, especially in JJM, could constrain cash flow.

Intensified competitive pressures in infrastructure contracts may squeeze margins.

Valuation and Target Price

ICICI Securities has revised the target price downward to Rs 235 from Rs 275 earlier, factoring in an earnings downgrade derived from execution challenges and margin compression. The stock remains a BUY at this level, supported by:

Strong order backlog ensuring revenue visibility

Expected operational recovery in H2FY26 and beyond

Strategic high-value projects enhancing earnings quality

Reasonable leverage and disciplined capital allocation

The stock offers a compelling risk-reward profile for long-term investors seeking exposure to India's infrastructure growth story amid transient headwinds.

Stock Levels and Investor Guidance

Current Market Price: Rs 195 (approximate as per report)

Recommended Buy Level:Around current market price, considering the stock has factored in near-term headwinds.

Target Price:Rs 235 over 12 months, providing roughly 20% upside from current levels.

Stop Loss:Investors should consider a cautionary stop loss near Rs 170 to mitigate downside risks on execution slip-ups.