Construction

March 2010
Construction
Work-in-Progress
Satyam Agarwal (AgarwalS@MotilalOswal.com); Tel: +91 22 3982 5410
Wealth Creation Study 2004-2009 Construction
Contents
Indian Construction: Work-in-Progress ..................................................................................... 4-5
Improving Order Intake Visibility to Revive Deteriorated Book-to-Bill Ratio ................... 6-10
BOT/Real Estate Projects Provide Unlocking Opportunities ............................................... 11-13
Working Capital Management and Interest Cost Hold Key to Profitability ...................... 14-18
3QFY10: Execution Impacted, Margins Stable .................................................................... 19-22
Attractive Valuations; Top Picks are NCC and Simplex ...................................................... 23-26
Companies ............................................................................................................................... 27-61
Hindustan Construction ..................................................................................................... 28-38
IVRCL ................................................................................................................................. 39-46
Nagarjuna Construction ..................................................................................................... 47-54
Simplex Infrastructure ....................................................................................................... 55-61
*Prices as of Friday, February 26, 2010
2 March 2010 2
The NTD Trilogy
Our First NTD report Preface

In 2007, we launched our landmark India NTD (Next Trillion Dollar) report. This report
brought out a simple, yet profound, fact: it took India 60 years since independence to
generate the first trillion dollar of GDP. Its next trillion dollar (NTD) would take only 5-
6 years, based on 12-15% nominal GDP growth.
60 YEARS FOR THE FIRST TRILLION DOLLARS; SIX YEARS FOR THE NEXT
2.5 Second trillion dollar GDP

in 5-6 years after the first 2
2.0
NTD: Oil & Gas 12% CAGR
60 years for first trillion
dollar of GDP
1.5 1.3
1
16% CAGR
1.0
4% CAGR 0.5
0.5
0.0
FY10E
FY11E
FY12E
FY13E
FY14E
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
NTD: Consumer
This NTD era spells exponential growth for several businesses which, in turn, throws
up several investment themes and opportunities. Since our first NTD report, we have
captured such ideas in an "NTD Thematic" series. We already see the NTD opportunity
playing out in Gas and in Consumer non-durables.
We now release a TRILOGY of reports - Cement, Construction and Engineering - all

of which are offer a play on the India NTD theme.
We have lined up many more NTD Thematics in 2010. Stay tuned!

Indian Construction: Work-in-Progress

We believe India's Infrastructure is a 'work-in-progress', and offers significant opportunities for construction.
We are bullish on the medium-term prospects of the Indian construction sector driven by: (i) improving order
intake, (ii) stable margins, and (iii) value unlocking opportunities. Adjusted for BOT/Real Estate projects,
sector P/E stands at an attractive 13x FY11E earnings. Our top picks are NCC and Simplex. We upgrade
HCC to Buy and downgrade IVRCL to Neutral.
BOOK-TO-BILL FOR OUR CONSTRUCTION
Improving order intake visibility to revive deteriorated book-to-bill ratio: The TTM book-to-bill
COVERAGE UNIVERSE (X)
(BTB) for our construction coverage universe has declined from 3.9x in FY05 to 2.6x currently. This moderation
3.8
3.4 has impacted near-term revenue visibility and has been caused mainly by delays in order intake due to weak
3.1 3.2
2.6 government finances and a challenging credit environment. We believe the macro environment is showing
initial signs of improvement; orders from sectors such as roads, power and urban infrastructure are picking
up. As L1 projects get converted into orders, we expect end-FY10 BTB of 3.2x against 2.6x currently. NCC
and Simplex have diversified vertical, client and geographic mix and are better positioned.
Healthier BTB could boost FY12 execution: Our estimates suggest revenue growth of 19.8% in FY11
3QFY07 3QFY08 3QFY09 3QFY10 FY10E
and 21.8% in FY12 compared with 9.2% in FY10. While growth rates are improving, they are still lower than
the 37% CAGR over FY05-09. Revival in order intake and a healthier BTB could boost execution in FY12
and narrow the growth gap.
INVESTMENTS IN SUBSIDIARIES (RS M)
FY06 FY10E EBITDA margins to be stable: During FY10, most construction companies reported improved EBITDA
HCC 1,422 6,952 margins despite poor execution, leading to low fixed cost absorption. Margin expansion is being driven by
IVRCL 2,894 9,550 lower commodity prices, project mix change and other company-specific factors. During FY11 and FY12,
NCC 1,982 15,053 we expect margins to be largely stable. Bunching up of order intake in the interim period could lead to higher
Patel 268 5,564 mobilization expenses, resulting in possible near-term margin disappointment.
Simplex 3 201
BOT/Real estate projects provide unlocking opportunities: Investments and advances in BOT/Real
Total 6,569 37,320
Estate (RE) projects for our construction universe have increased from Rs6.6b in FY06 to Rs28.2b in FY09,
% of CE 11.7 23.5
and are expected to be Rs37.3b in FY10. Of the Rs37.3b investments and advances, BOT projects account
Source: Company/MOSL
for Rs18.6b, RE for Rs15b and others for Rs3.3b.
2 March 2010 4
Indian Construction: Work-in-Progress

CONSTRUCTION SECTOR INDEX V/S SENSEX NCC has the highest FY10 investment book at Rs15.1b, up from Rs2b in FY06. From here through FY11,
Construction Sector Sensex NCC would have an operational portfolio of five road projects and a 100MW merchant hydropower
360 project. Financial closure of its 1,320MW thermal power project in 1QFY11 will add to SOTP value.
280 IVRCL is transferring its BOT portfolio to IVR Prime Urban, resulting in effective holding of 80.5%
against 62.4% currently. Improved clarity on project IRRs will lead to value unlocking.
200
HCC has invested Rs2.2b in Lavasa (65% stake) and the latter intends to float an IPO in CY10 at an
120 expected valuation of ~Rs100b.
40
Attractive valuations; top picks are NCC and Simplex: Construction companies in our universe returned
Jan-09
Mar-09
May-09
Jul-09
Oct-09
Dec-09
Feb-10
Aug-09
164% on an average since April 2009, outperforming the Sensex by 120%. We estimate strong earnings
CAGR of 27% over FY10-12, with possibility of positive earnings surprises. While the sector is trading at a
reported P/E of 18x FY11E, adjusted for BOT/Real Estate projects, the P/E stands at attractive 13x FY11E
earnings. Our top picks are NCC and Simplex. We upgrade HCC to Buy and downgrade IVRCL to Neutral.
Key investment risks

Weak government finances and crowding out of private sector could impact project awards.
INCREASED WORKING CAPITAL IN 3QFY10
2QFY10 3QFY10
Interest cost has increased from 2% of revenue in FY06 to 3.4% in FY10. Deterioration in working
HCC NWC (Rs B) 21.0 24.0 capital and higher interest rates could impact profit growth.
BOT/Real Estate projects: Execution delays, project cost overruns and lower-than-expected operational
IVRCL Debtors (Rs B) 11.5 14.0
NCC NWC (Rs B) 20.9 21.4 cash flows could impact target prices. Further, high competitive intensity leading to aggressive new
Patel NWC (Days) 165 days 195 days project bids could also erode value of investments.
Simplex NWC (Rs B) 13.0 13.0 SUM OF THE PARTS VALUATION (RS/SHARE)
CMP* TARGET CORE BOT REAL SUBSI- TARGET RATING UPSIDE
(RS) PER BUSINESS ESTATE DIARIES/ PRICE (%)
(X,FY12) CASH (RS)
HCC 133 14 113 6 58 -18 159 Buy 19.5
IVRCL 322 10 243 92 0 15 349 Neutral 8.5
NCC 155 12 160 33 12 0 204 Buy 32.0
Simplex Infra 445 12 569 0 0 0 569 Buy 27.9
*Prices as of Friday, February 26, 2010 Source: MOSL
2 March 2010 5
Improving Order Intake Visibility to Revive Deteriorated Book-to-Bill Ratio

BOOK-TO-BILL FOR OUR CONSTRUCTION The TTM book-to-bill (BTB) for our construction coverage universe has declined from 3.9x in FY05 to 2.6x
COVERAGE UNIVERSE (X)
currently. This moderation has impacted near-term revenue visibility and has been caused mainly by delays
3.8
3.4
in order intake due to weak government finances and a challenging credit environment. We believe the
3.1 3.2
macro environment is showing initial signs of improvement; orders from sectors such as roads, power and
2.6
urban infrastructure are picking up. As L1 projects get converted into orders, we expect end-FY10 BTB of
3.2x against 2.6x currently. NCC and Simplex have diversified vertical, client and geographic mix and are
better positioned.
Key risk: Weak government finances and crowding out of private sector could impact project awards.
3QFY07 3QFY08 3QFY09 3QFY10 FY10E
In this section... Pg
Order Intake: Book-to-Bill Declines; Execution Poor ................................................................................ 7
Order Book Analysis: NCC, Simplex Better Positioned ............................................................................. 8
Andhra Pradesh: Execution, Finances Impacted in 3QFY10 ..................................................................... 9
Execution to Improve (still below historical CAGR); Margins Stable ...................................................... 10
2 March 2010 6
Order Intake: Book-to-Bill Declines; Execution Poor

Book-to-bill ratio declines to 2.6x in 3QFY10 QUARTERLY BOOK-TO-BILL RATIO (X)
FY07 FY08 FY09 FY10 CHG.
For construction companies, the book-to-bill ratio
3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q (BP)
(BTB) has declined to 2.6x in 3QFY10 against
3.1x in 3QFY09, 3.4x in 3QFY08 and 3.8x in HCC 4.2 3.9 3.7 3.6 3.2 3.3 3.2 3.2 3.5 4.7 4.3 4.2 4.1 -5
3QFY07. The decline of ~120bp over the past IVRCL 3.8 3.5 3.7 3.3 3.3 3.5 3.2 3.2 3.1 3.0 2.8 2.9 3.4 -40
four years has been a negative surprise, as we NCC 2.7 2.5 2.6 3.0 3.2 3.3 3.3 3.1 2.9 2.9 3.3 3.4 3.4 75
expected improved intake in 9MFY10, after Patel 4.7 4.5 4.4 4.6 4.5 4.5 4.3 4.1 4.7 4.0 3.9 3.6 3.1 -167
government stability. This will impact execution Simplex 3.6 3.1 3.6 3.3 3.7 3.6 3.1 2.9 2.4 2.1 2.1 2.2 2.3 -128
in the medium term, particularly 1HFY11. Aggregate 3.8 3.5 3.6 3.5 3.4 3.5 3.3 3.2 3.1 3.0 2.9 2.9 2.6 -115
The BTB ratio declined (over the past four years) L&T 2.2 2.1 2.2 2.2 2.2 2.1 2.1 2.1 2.2 2.1 2.1 2.4 2.7
particularly for Simplex (down 128bp) and Patel L&T (excl BTG) 2.2 2.1 2.2 2.2 2.2 2.1 2.1 2.1 2.1 2.0 2.1 2.2 2.3 9.4
Engineering (down 167bp). Simplex's BTB ratio Source: Company/MOSL
of 2.3x is its lowest in the past 7-8 years.
For L&T, excluding power BTG, BTB ratio was
YEARLY BOOK-TO-BILL RATIO (X)
largely stable at 2.0-2.3x. Including power BTG FY03 FY04 FY05 FY06 FY07 FY08 FY09FY10E CONSTRUCTION COVERAGE: BTB (X)
as part of L&T's standalone order book, BTB HCC 4.9 3.8 3.6 4.9 3.9 3.3 4.9 4.2 3.8 3.4
ratio increased to 2.7x. Thus, L&T is better IVRCL 3.3 2.1 3.7 4.1 3.0 3.5 3.0 3.5 3.1 3.2
positioned in the construction basket in terms 2.6
NCC 2.5 2.0 3.0 2.9 2.5 3.3 2.9 3.3
of near term execution. Patel N.A. 4.6 5.2 4.9 4.6 3.9 4.0 3.4
Simplex Infra N.A. 5.5 4.5 3.3 3.0 3.6 2.2 2.5
Down, but not out
Aggregate 2.8 3.3 3.9 3.9 3.4 3.5 3.1 3.2
We expect a pick up in execution in 1HFY11,
L&T 1.5 1.8 1.4 1.7 2.1 2.1 2.1 2.8
mainly in segments like NHAI roads, railways, 3QFY07 3QFY08 3QFY09 3QFY10 FY10E
L&T (Excl BTG) 1.5 1.8 1.4 1.7 2.1 2.1 2.0 2.3
urban infrastructure, hydro power, nuclear
power and ports. Source: Company/MOSL
As L1 projects get converted into order books,
we expect BTB at the end of FY10 to be 3.2x
against 2.6x in December 2009.
2 March 2010 7
Order Book Analysis: NCC, Simplex Better Positioned

NCC, Simplex better positioned SEGMENTAL COMPOSITION OF ORDER BOOK (%): NCC, SIMPLEX MOST DIVERSIFIED
HCC IVRCL NCC PATEL SIMPLEX
NCC’s order intake of Rs65b in 9MFY10 is
post eliminating Rs9b pertaining to in-house Transport 14 23 4 8 27
Dubai real estate projects. Besides, a large part Water 29 48 29 45 4
of the intake (including international projects) Power 56 6 11 39 26
entails short gestation, which provides visibility Buildings - 23 25 - 8
for strong revenue growth in FY11 and FY12. International - - 22 8 22
NCC and Simplex have among the most Others 1 - 9 - 13
diversified vertical, client and geographic mix Source: Company/MOSL
ORDER BOOK ANALYSIS (RS M)
and so are better positioned. INTAKE REVENUES L1 ORDERS REMARKS
(9MFY10) (9MFY10) (DEC 2009)
Execution constraints for HCC, IVRCL in
HCC 20,743 27,713 54,980 L1 comprises NHAI BOT projects (Rs30b)
1HFY11
IVRCL 63,307 34,879 45,000 Intake incl road BOT (Rs40b), tankage (Rs10b)
For HCC, of the Rs157b order book in
NCC 65,304 32,545 N.A. Intake + L1 incl bldgs (Rs22b), international (Rs18b),
December 2009, Andhra Pradesh irrigation
water (Rs21b) - All short gestation projects
projects contribute Rs41b [slow moving] and
Patel Engg 3,966 12,966 30,000 L1 incl hydro (Rs20b)
Sawalkote J&K hydro power project Rs20b
Simplex Infra 37,487 32,017 N.A. Thermal power is 46% of order intake
[under litigation]. Thus, Rs61b of the order book
is slow moving, which will impact execution in
ORDER BOOK COMPOSITION (CLIENT-WISE) (%)
1HFY11. Out of L1 projects of Rs55b, BOT
PRIVATE GOVT PPP EXPORTS
projects from NHAI contribute ~Rs30b, entailing
HCC 12 85 3 Nil
long gestation periods for revenue contribution.
IVRCL 5 81 14 Nil
IVRCL's December 2009 order book of
NCC 18 60 Nil 22
Rs218b (including Rs45b of L1), comprises (i)
Patel 7 85 Nil 8
slow moving Andhra irrigation projects (Rs49b),
Simplex 32 37 9 22
(ii) long-gestation BOT road projects (Rs45b).
Aggregate 15 70 9 17
L&T 32 39 9 20
2 March 2010 8
Andhra Pradesh: Execution, Finances Impacted in 3QFY10

Slow execution, delayed payments for Andhra ORDERS FROM ANDHRA PRADESH (RS B)
ORDER BOOK FROM AP % ORDER BOOK
Pradesh irrigation projects
Jalayagnam project started in 2004, with initial
HCC 41 26.1
capital outlay of ~Rs1,800b. Of this, Rs474b has IVRCL 49 28.0
been spent and Rs780b is earmarked for four NCC 14 9.5
major projects. All the projects have been Patel Engineering 24 38.1
awarded for construction. Simplex Negligible Negligible
We understand the AP irrigation spend in FY10
INCREASED WORKING CAPITAL IN 3QFY10
is expected to be Rs110b-120b against a
2QFY10 3QFY10
budgeted spend of Rs170b for FY10 and actual
HCC NWC (Rs B) 21.0 24.0
spend of Rs148b in FY09.
IVRCL Debtors (Rs B) 11.5 14.0
Irrigation bills of Rs50b-55b are outstanding with
NCC NWC (Rs B) 20.9 21.4
the AP government and payment period has
Patel NWC (Days) 165 days 195 days
increased from 2 to 4-6 months.
Simplex NWC (Rs B) 13.0 13.0
The Polavaram project is expected to become
a national project, which means the Central TREND IN DEBT (RS M): INCREASED DESPITE FUND RAISING
government will provide 90% of the funding, SEP-08 MAR-09 JUN-09 SEP-09 DEC-09 DER (X)
which is expected to be Rs30b-40b a year. HCC 22,000 23,218 21,000 22,000 25,000 1.6
IVRCL 14,500 13,980 17,000 17,500 21,000 1.1
IVRCL, HCC, Patel Engineering: execution, NCC 11,580 12,439 14,161 12,500 13,880 0.6
finances impacted in FY10 Patel 11,000 10,205 N.A. 16,000 14,500 1.2
Andhra irrigation projects comprise 25-40% of
Simplex 12,500 12,205 12,410 12,850 13,020 1.0
HCC, IVRCL and Patel Engineering's order
book. FUND RAISING BY CONSTRUCTION COMPANIES (RS B)
Debt at HCC and Patel Engineering rose since HCC 4.8 QIP
March 2009. IVRCL's adjusted debt is up 50% Nagarjuna 3.7 QIP
since March 2009 largely due to a build up of Patel Engineering 3.6 QIP
receivables. Source: Company
2 March 2010 9
Execution to Improve (still below historical CAGR); Margins Stable

FY12 execution could be a positive surprise, REVENUE (RS B), CAGR (%): AFTER EXECUTION ISSUES IN FY10, IMPROVEMENT EXPECTED IN FY11
% CAGR
depends on pace of order intake
FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY05- FY10-
We expect the construction sector's revenue to
FY09 FY12E
grow 19.8% in FY11 and 21.8% in FY12, against
HCC 15 20 24 31 33 37 46 55 22 22
revenue growth of 9.2% in FY10. This is lower
IVRCL 11 15 23 37 49 53 62 77 47 20
than revenue CAGR of 37% over FY05-09.
NCC 12 18 29 35 42 47 57 67 37 20
During FY11, we expect NCC and HCC to
Patel 5 8 11 13 18 22 27 na 35 N.A.
post highest revenue growth of ~24% and
Simplex Infra 10 13 17 28 47 46 54 68 47 21
IVRCL and Simplex to post revenue growth
Aggregate 53 75 104 143 188 205 246 267 37 21
of 16-17%.
% YoY 42.5 38.5 38.1 31.0 9.2 19.8 21.8
We believe FY12 could be a positive surprise,
L&T 134 151 180 253 343 369 476 630 26 31
with actual revenue growth higher than our
% YoY 12.0 19.6 40.3 35.8 7.5 28.9 32.6
estimate of 21.8%. This will depend on the pace
of order intake in FY11.
EBITDA margins to be stable, near-term EBITDA (%), VARIATION (BP): MARGIN EXPANSION FOR CONSTRUCTION COMPANIES
disappointment possible VARIATION(BP)
In FY10, most construction companies posted FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY05- FY10-
improved EBITDA margins, despite poor FY09 FY12E
execution. This is encouraging, as lower HCC 10.5 9.2 9.1 11.9 13.0 12.5 13.2 13.2 254 71
execution resulted in poor fixed cost absorption. IVRCL 8.2 8.8 9.8 9.9 8.6 9.7 9.8 9.9 44 26
Margin expansion was driven by factors like NCC 7.6 8.9 9.4 10.4 9.0 9.9 10.2 10.3 137 40
lower commodity prices and project mix change. Patel 12.2 13.4 12.3 14.8 14.8 14.5 14.8 N.A. 259 N.A.
In FY11-12, we expect margins to be largely Simplex Infra 8.2 8.8 9.5 9.5 8.5 9.9 10.1 9.9 26 10
stable. Bunching up of order intake in the interim L&T 7.5 9.6 12.2 13.1 13.3 12.8 12.4 12.7 575 -10
could lead to increased mobilization expenses, Source: Company/MOSL
resulting in near-term margin disappointment.
2 March 2010 10
BOT/Real Estate Projects Provide Unlocking Opportunities
INVESTMENTS IN SUBSIDIARIES (RS M) Investments and advances in BOT/Real Estate (RE) projects for our construction universe have increased
FY06 FY10E
from Rs6.6b in FY06 to Rs28.2b in FY09, and are expected to be Rs37.3b in FY10. Of the Rs37.3b
HCC 1,422 6,952 investments and advances, BOT projects account for Rs18.6b, RE for Rs15b and others for Rs3.3b.
IVRCL 2,894 9,550
NCC 1,982 15,053 NCC has the highest FY10 investment book at Rs15.1b, up from Rs2b in FY06. From here through
Patel 268 5,564 FY11, NCC would have an operational portfolio of five road projects and a 100MW merchant hydropower
Simplex 3 201 project. Financial closure of its 1,320MW thermal power project in 1QFY11 will add to SOTP value.
Total 6,569 37,320 IVRCL is transferring its BOT portfolio to IVR Prime Urban, resulting in effective holding of 80.5%
% of CE 11.7 23.5 against 62.4% currently. Improved clarity on project IRRs will lead to value unlocking.
Source: Company/MOSL HCC has invested Rs2.2b in Lavasa (65% stake) and the latter intends to float an IPO in CY10 at an
expected valuation of ~Rs100b.
Key risk: Execution delays, project cost overruns and lower-than-expected operational cash flows could
impact target prices. Further, high competitive intensity leading to aggressive new project bids could also
erode value of investments.
Investments in Subsidiaries Offer Unlocking Opportunities ..................................................................... 12
Expect Improved Embedded Valuations ................................................................................................... 13
2 March 2010 11
Investments in Subsidiaries Offer Unlocking Opportunities

Investments in BOT projects, RE offer SUBSIDIARY COMPANIES (INVESTMENTS + ADVANCES, RS M): POSSIBILITY OF VALUE UNLOCKING
BOT REAL ESTATE OTHERS TOTAL
unlocking opportunities
FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10
Investments and advances in BOT and real
HCC 738 1,216 2,592 2,066 3,944 3,944 609 416 416 3,413 5,575 6,952
estate subsidiaries increased from Rs6.6b in
IVRCL 2,949 3,940 5,039 3,250 3,192 3,192 1,134 1,262 1,320 7,333 8,394 9,550
FY06 to Rs28.2b in FY09 and are expected to
NCC 2,275 3,312 7,226 6,573 7,027 7,020 366 459 808 9,214 10,798 15,053
be Rs37.3b in FY10.
Patel 790 1,485 3,738 93 960 960 848 739 579 1,731 3,184 5,564
Of the Rs37.3b investments and advances, BOT
Simplex 0 0 0 0 0 0 99 201 201 99 201 201
projects account for Rs18.6b, RE for Rs15b and
Total 6,752 9,953 18,595 11,982 15,123 15,115 3,057 3,077 3,323 21,790 28,153 37,320
others for Rs3.3b.
NCC has the highest investment book of
Rs15.1b as at FY10, up from Rs2b in FY06.
This includes Rs7b towards RE projects, which
will take time for monetization. For NCC, RE SUBSIDIARY COMPANIES: INVESTMENTS + ADVANCES (RS M)
investments are largely constant at Rs7b over FY06 FY07 FY08 FY09 FY10E FY11E
FY08-10, as the company capped investments. HCC 1,422 2,673 3,413 5,575 6,952 8,034
Investments/advances in BOT rose from IVRCL 2,894 6,935 7,333 8,394 9,550 9,652
Rs2.3b in FY08 to Rs7.2b in FY10. NCC 1,982 6,138 9,214 10,798 15,053 16,521
IVRCL’s investment/advances in BOT projects Patel 268 2,182 1,731 3,184 5,564 5,564
are expected to be Rs5b at the end of FY10, Simplex 3 52 99 201 201 201
and at Rs3.2b in RE projects. IVRCL is Total 6,569 17,980 21,790 28,153 37,320 39,972
transferring its BOT portfolio to IVR Prime % of CE 11.7 22.1 19.5 20.4 23.5 22.7
Urban, resulting in effective holding of 80.5% Source: Company/MOSL
v/s 62.4%.
HCC invested Rs3.9b in real estate, including
Rs3b in HCC Real Estate and Rs810m in
Vikhroli SRA project.
2 March 2010 12
Expect Improved Embedded Valuations

NCC to have six projects by end FY11 CONSTRUCTION BASKET: TARGET PRICE COMPOSITION (%)
Two of NCC's BOT road projects are
Core Business Real Estate BOT Others
operational and three will start operations by BOT: Several companies are in the initial
100 stages of building up a BOT portfolio.
July 2010. 100MW Sorang hydro-power unit
BOT contributes 18% now to the price
(merchant) will start operations by end FY11. 75 target v/s 7% in December 2007
In 1QFY10, NCC sold 9.5% stake in Gautami
50 Real estate: This now accounts for
(464MW) to GVK at 1.8x P/BV. 14% of our price target v/s 17% in June
NCC will set up a 1,320MW thermal power 25 2007 and 28% in December 2007
plant in Orissa; the project has received most
0
clearances and coal linkages and acquired land
Nov-05
Feb-06
June-06
Dec-06
Mar-07
June-07
Dec-07
Mar-08
June-08
Dec-08
Mar-09
Jan-10
Sep-07
Aug-08
(1,800 acres). Financial closure is expected in
1QFY11.
BOT PORTFOLIO (RS B): SUMMARY
IVRCL: Consolidation with IVR Prime Urban
PROJECT TOTAL PROPORTIONATE EQUITY EQUITY
offers options to unlock value
COST EQUITY EQUITY INVESTED OUTSTANDING
IVRCL has won four road projects (Rs45b)
HCC 55.6 12.6 8.9 2.5 6.5
and a tankage project (Rs30b). IVRCL’s
IVRCL 93.4 21.0 17.3 3.8 13.5
proportionate equity share is worth Rs13.9b.
NCC 121.9 31.9 16.6 4.6 12.0
Improved clarity on project IRRs will lead to
value unlocking.
BOT PROJECTS BECOMING OPERATIONAL BY END FY11 (RS B): SUMMARY
HCC: Lavasa IPO could be a trigger PROJECT TOTAL PROPORTIONATE EQUITY EQUITY
HCC Real Estate invested Rs2.2b in Lavasa COST EQUITY EQUITY INVESTED OUTSTANDING
(65% stake) and intends to float an IPO in CY10 HCC 8.9 2.4 2.4 1.7 0.6
at expected valuation of ~Rs100b. IVRCL 18.3 3.8 3.8 3.8 0.0
In 9MFY10, Lavasa posted revenue of Rs3.4b
NCC 32.7 8.2 4.1 3.9 0.3
and PAT of Rs989m. Source: Company/MOSL
247 Park (1.1msf) at Vikhroli is complete and
70% leased.
2 March 2010 13
Working Capital Management and Interest Cost Hold Key to Profitability

ADJUSTED WORKING CAPITAL CYCLE (DAYS) Net working capital has increased mainly due to weak government finances (e.g. Andhra Pradesh). This, in
FY06 FY07 FY08 FY09 FY10E FY11E turn, is also partly responsible for debt levels increasing from Rs72b as of March 2009 to Rs87b in December
HCC 75 181 158 171 175 148 2009.
IVRCL 120 112 140 130 140 132
NCC 91 52 84 110 121 108 Interest cost has increased from 2% of revenue in FY06 to 3.4% in FY10. Deterioration in working capital
Patel 100 184 243 250 203 196 and higher interest rates could impact profit growth.
Simplex 114 122 98 82 83 83
Adj NWC 101 116 124 128 131 123
Source: Company/MOSL In this section... Pg
Working Capital Impacted Given Build-up of Receivables ...................................................................... 15
Negative Operating Cash Flows: Concerns Exaggerated ......................................................................... 16
Interest Costs: Down in 3QFY10; Savings Expected to be Restricted in FY11 ................................. 17-18
2 March 2010 14
Working Capital Impacted given Build-up of Receivables

Net working capital deteriorated in FY10 REPORTED WORKING CAPITAL CYCLE (DAYS) NWC, REVENUE GROWTH (% YOY)
We expect adjusted net working capital (NWC) FY06 FY07 FY08 FY09 FY10E FY11E Revenue grow th (%) NWC (% revenues)
cycle to deteriorate from 128 days in FY09 to HCC 77 187 164 192 194 164 65
131 days in FY10. Adjusted NWC excludes IVRCL 123 176 179 164 171 159
50
advances to subsidiary companies and considers NCC 105 69 121 139 147 130
mobilization expenses as part of current Patel 104 193 251 250 203 196 35
liabilities. Simplex 117 123 105 82 83 83
20
The deterioration is largely due to increased NWC 107 136 145 144 145 135
receivables from Andhra Pradesh irrigation Source: Company/MOSL 5
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
projects. We expect IVRCL's NWC to rise
from 130 days in FY09 to 140 days in FY10
Simplex and NCC have the best NWC cycle,
given the limited share of the government sector ADJUSTED WORKING CAPITAL CYCLE (DAYS)
at 37% and 60%, respectively. FY06 FY07 FY08 FY09 FY10E FY11E NWC AND GROSS FISCAL DEFICIT (% OF STATE
HCC 75 181 158 171 175 148 GROSS FISCAL DEFICIT)
Strong correlation of NWC to revenue growth, IVRCL 120 112 140 130 140 132 GFD(% GDP) NWC(% revenues)
45 9
not to government finances NCC 91 52 84 110 121 108
There has been no direct correlation between Patel 100 184 243 250 203 196
35 7
NWC and government finances. Over FY99- Simplex 114 122 98 82 83 83
04, GFD as a percentage of GDP rose to 4%+ Adj NWC 101 116 124 128 131 123 25 5
(v/s. average 2.6%), NWC (as a percentage of Source: Company/MOSL
revenue) declined from 25% to 18%. 15 3
There is strong correlation between revenue
2.4
2.7
2.6
2.7
2.8
4.2
4.6
4.2
4.1
4.1
4.4
3.4
2.5
1.9
2.3
6.0
6.8
growth and NWC.. 5 1
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Given an expected slowdown in revenue growth
over FY10-12 (at 21% CAGR) v/s 37% CAGR
over FY05-09; we expect the NWC cycle to Source: Company/MOSL
improve going forward.
2 March 2010 15
Negative Operating Cash Flows: Concerns Exaggerated

Adjusted cash flows from operations positive REPORTED CASH FLOW FROM OPERATIONS
Construction companies posted negative cash OCF(Rs m), LHS Revenue grow th, %YoY
2570
flow from operations over FY06-09. These
1853
1547
1548
1084
numbers are exaggerated due to advances made
848
300
334
221
155
to subsidiaries (capital misallocation),
recognition of mobilization advance as debt v/s
-1052
-1644
current liabilities (by NCC and Patel
Engineering) and reduction in the quantum of
interest-bearing mobilization advances (given
-6858
lower cost of outside borrowing).
FY06 -7578
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY07
FY08
FY09
Adjusted for these factors, cash flows from
operations by construction companies in FY05-
09 were Rs4b, against reported numbers of ADJUSTED CASH FLOW FROM OPERATIONS
negative Rs15.6b.
3,051
4,145
OCF(Rs m), LHS
Revenue grow th, %YoY
2,121
1,853
Construction companies had positive cash flows
1,547
1,312
1,084
from operations over FY96-05, during which
848
334
300
308
221
155
revenue grew 28% CAGR.
Reasons for change in operating cash flow

profile after FY05 are: (1) increased revenue
-4,137
growth trajectory of 36% CAGR over FY06-
08 against 28% CAGR over FY96-05, and (2)
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
easy access to equity funding.
2 March 2010 16
Interest Costs: Declined in 3QFY10; Savings Expected to be Restricted in FY11

Expect interest cost as a percentage of INTEREST COST (RS M, AND % OF REVENUES)
FY07 FY08 FY09 FY10
revenues to increase
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Interest cost as a percentage of revenue in
Gammon 52 18 53 13 35 38 48 201 121 155 161 616 365 382 338
3QFY10 was 3.4% (v/s 3.8% in 3QFY09). The
Revenues (%) 1.2 0.5 1.2 0.2 0.7 0.8 0.9 2.5 2.1 3.0 2.5 3.3 4.3 4.1 3.3
decline in interest costs was driven by (1) raising
HCC 74 158 175 212 322 342 408 452 391 492 573 650 613 499 496
of equity of Rs12.1b by HCC, NCC and Patel
Revenues (%) 1.3 3.8 3.3 2.6 4.4 6.2 5.5 4.4 4.4 7.1 6.5 6.3 6.4 5.8 5.3
Engineering in 9MFY10, and (2) decline in
IVRCL 133 103 98 25 57 76 177 208 194 304 419 392 389 354 368
interest rates in the economy.
Revenues (%) 3.1 2.8 1.9 0.3 0.8 1.1 1.8 1.6 2.1 2.7 3.5 2.4 3.6 2.9 3.1
NCC 57 96 185 166 145 233 167 174 239 275 238 213 346 322 306
Interest rates could start rising, and consequently,
Revenues (%) 0.9 1.5 2.6 1.9 1.9 3.4 2.1 1.4 2.5 2.6 2.3 1.9 3.5 3.0 2.6
we expect revenue growth of 19.8% in FY11,
Patel Engg 46 -13 24 52 27 28 30 132 145 163 195 150 242 253 210
and savings in interest cost to be restricted in
Revenues (%) 1.6 -0.7 1.1 1.3 0.8 1.2 1.1 2.6 3.7 5.3 6.1 2.0 5.1 6.3 5.0
terms of interest costs as a percentage of
Simplex Infra 121 148 160 202 247 251 296 214 275 324 436 392 348 289 262
revenues.
Revenues (%) 3.4 4.2 3.8 3.5 4.2 4.4 4.2 2.2 2.7 3.2 3.4 2.8 3.1 2.8 2.5
Total 484 509 697 670 834 968 1,125 1,380 1,363 1,712 2,021 2,413 2,302 2,098 1,981
Revenues (%) 1.8 2.1 2.5 1.6 2.3 3.0 2.8 2.3 2.8 3.6 3.8 3.1 4.2 3.8 3.4
Source: Company
2 March 2010 17
Decline in Borrowing Costs to be Restricted in FY11

Leverage up in FY10, despite fund raising LEVERAGE UP SIGNIFICANTLY IN FY10 (NET OF CASH), DESPITE FUND RAISING (RS M)
FY07 FY08 FY09 % INCR DEC-08 DEC-09 % INCR
Debt levels increased from Rs72b at the end of
FY09 to Rs87b as at December 2009. Debt HCC 15,511 18,449 23,218 25.9 22,000 25,000 13.6
increased particularly for IVRCL (up 50% since IVRCL 5,559 10,678 13,980 30.9 14,500 21,000 44.8
FY09) and Patel Engineering (up 42% YoY). NCC 6,370 8,938 12,439 39.2 11,580 13,880 19.9
For Patel Engineering, the increase in debt is Patel Engineering 3,245 6,579 10,205 55.1 11,000 14,500 31.8
despite Rs3.7b raised through a QIP. Simplex Infra 6,877 7,493 12,205 62.9 12,500 13,020 4.2
Net DER (including mobilization expenses as
Note: For IVRCL, debt includes Rs1.5b of temporary repayment by IVR Prime Urban
part of debt) for NCC is 0.9x, one of the lowest
INTEREST COST (% OF REVENUE) NET PROFIT MARGIN (%)
among its peers, which offers room for flexibility.
FY06 FY07 FY08 FY09 FY10E FY11E FY06 FY07 FY08 FY09 FY10E FY11E
HCC 2.1 2.6 4.9 6.4 5.9 4.5 HCC 4.2 2.4 2.3 2.3 3.5 4.0
Interest cost as a percentage of revenue to
IVRCL 1.7 1.3 1.3 2.7 2.8 3.1 IVRCL 6.1 6.0 5.6 4.7 4.1 3.9
stay stable
NCC 1.2 1.8 2.1 2.3 2.9 3.2 NCC 5.7 4.6 4.7 3.7 4.0 3.9
We expect interest costs as a percentage of
Patel Eng. 2.5 0.6 1.6 2.0 4.0 3.2 Patel Engg 9.0 10.0 11.2 9.7 6.5 7.1
revenue to stay in a band of 3.2-3.4% in FY10
Simplex Simplex
and FY11. This increased from 2% in FY06.
Infra 3.0 3.7 3.6 3.0 2.5 2.3 Infra 3.1 3.1 3.6 2.8 2.8 3.3
Net profit margins are also expected to stay in
Aggregate 2.0 2.1 2.7 3.3 3.5 3.2 Aggregate 5.6 4.8 4.7 3.9 3.9 4.1
a band of 3.9-4.1% in FY10 and FY11. Margins
declined from 5.6% in FY06 to 3.9% in FY10.
A large part of the decline is due to increased NET DER (TAKING MOBILIZATION ADVANCE AS PART OF DEBT, X)
FY06 FY07 FY08 FY09 FY10E FY11E
interest expenses.
HCC** 0.4 1.7 1.8 2.5 1.5 1.5
For HCC, interest costs as a percentagte of
IVRCL 1.2 0.5 0.7 0.9 1.2 1.1
revenue are expected to fall from 6.4% in FY09
NCC 0.2 0.9 0.7 0.9 0.9 1.0
to 4.3% in FY11, financial leverage of ~210bp.
Patel Engg 2.0 0.5 0.8 1.3 0.9 1.0
For Simplex, we expect interest cost as a
Simplex Infra 2.2 3.5 1.6 2.1 1.9 1.8
percentage of revenues to fall by 70bp.
**Includes FCCB of Rs5b as debt Source: Company/MOSL
2 March 2010 18
3QFY10: Execution Impacted, Margins Stable
In 3QFY10, most companies have had an improved initial order intake and a robust L1 pipeline: NCC
EXECUTION IMPACTED REVENUE
GROWTH (% YOY) Rs35b, IVRCL Rs45b, Patel Engineering Rs30b and HCC Rs55b.
60%
50% However, revenue growth was disappointing with IVRCL and Simplex even posting a YoY decline. EBITDA
40% margins expanded mainly due to lower commodity prices.
30%
20%
Political issues in Andhra Pradesh impacted execution and working capital/debt, which increased for IVRCL,
10%
HCC and Patel Engineering.
0%
1QFY06
2QFY06
3QFY06
4QFY06
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
Despite poor execution, interest costs as a percentage of revenue declined 83bp YoY to 3.6% in 3QFY10.
3QFY10 Analysis: Execution Impacted, Margins Stable ........................................................................ 20
Management Guidance: Several Downgrades ......................................................................................... 21
Key Quarterly Trends ............................................................................................................................... 22
2 March 2010 19
3QFY10 Analysis: Execution Impacted, Margins Stable

Most companies have had an improved initial LOW EXECUTION HITS MOST PLAYERS (RS M)
SALES EBITDA NET PROFIT
order intake and a robust L1 pipeline: NCC
ACTUAL YOY (%) VAR (%) ACTUAL YOY (%) VAR (%) ACTUAL YOY (%) VAR (%)
Rs35b, IVRCL Rs45b, Patel Engineering
HCC 9,450 7.9 -10.7 1,017 -4.1 -21.3 218 -27.3 -30.6
Rs30b and HCC Rs55b.
IVRCL Infra 11,840 -0.5 -13.8 1,156 6.5 -12.4 458 -1.5 -16.2
Jaiprakash 28,524 115.8 39.5 7,739 213.0 40.5 3,141 49.2 25.8
Revenue growth was disappointing with
NCC 11,870 15.6 -2.3 1,181 31.4 -5.6 479 31.8 -11.1
IVRCL and Simplex even posting a YoY
Simplex 10,668 -16.0 -22.9 969 -16.2 -32.9 231 -23.7 -57.6
decline. EBITDA margins expanded mainly due
to lower commodity prices.
ORDER INTAKE (RS B): INITIAL SIGNS EXECUTION IMPACTED REVENUE

Political issues in Andhra Pradesh impacted
OF IMPROVEMENT GROWTH (% YOY)
execution and working capital/debt, which
120 HCC IVRCL NCC Patel Simplex
increased for IVRCL, HCC and Patel 60%
Engineering. 100 50%
80 40%
Despite poor execution, interest costs as a 60 30%
20%
percentage of revenue declined 83bp YoY to 40
10%
3.6% in 3QFY10. 20
0%
0
1QFY06
2QFY06
3QFY06
4QFY06
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
-20
2 March 2010 20
Management Guidance: Several Downgrades in 3QFY10

Hindustan Construction (Downgrade): Earlier guided for FY10 revenue of Rs45b (up 29% YoY).
During 9MFY10, revenue growth was 12.2% YoY, thus implied growth in 4QFY10 is 68% YoY. We have
factored in FY10 revenue of Rs39.8b (up 14% YoY), implying revenue growth of 15% YoY in 4QFY10.
Management indicated profitability would be maintained at higher levels of 9MFY10.
IVRCL (Downgrade): Revenue growth of Rs58b-61.5b in FY10 (v/s Rs63b-65b earlier) with EBITDA
margin of 9.5-10% (v/s 8.7% in FY09, up 80-130bp).
Nagarjuna Construction (Maintained): Revenue guidance of Rs48b (16%YoY) and Rs55b (+15%YoY)
for standalone and consolidated entity respectively. Net profit margins at 4.25% in FY10 (vs 3.7% in
FY09). Order intake likely to be Rs75b-80b (v/s Rs65b earlier) in FY10, v/s Rs54b in FY09 (+20% YoY).
Patel Engineering (Maintained): Revenue growth of 20-25% YoY on consolidated basis in FY10.
Capex of Rs800m-1,000m in FY10.
Simplex Infrastructure (Downgrade): FY10 revenue growth is expected to be flat v/s earlier guidance
of 10% growth (given in October 2009) and initial expectations of 15-20%. EBITDA margins of 10-
10.5%.
L&T (Downgrade): Order intake up 30% YoY, revenue growth 10% (v/s 15% YoY earlier), stable
EBITDA percentage in FY10.
2 March 2010 21
Key Quarterly Trends

ORDER BOOK (RS B)
3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 YOY (%)
HCC 96 93 94 96 91 102 102 108 122 164 154 155 157 29
IVRCL 72 81 95 96 110 127 124 138 143 145 139 150 173 21
NCC 70 73 78 90 98 114 122 124 124 122 139 143 148 19
Patel 48 50 50 54 55 60 60 60 71 72 74 70 63 (11)
Simplex 43 53 70 71 89 100 100 107 102 101 100 105 106 4
Aggregate 329 350 387 407 442 502 507 537 562 604 606 623 648 15
% growth (QoQ) - 6.5 10.3 5.3 8.7 13.7 1.0 5.7 4.8 7.3 0.4 2.8 4.0
L&T 357 369 416 440 496 527 582 629 688 703 717 816 911 32
L&T (excl BTG) 357 369 416 440 496 527 582 613 672 687 701 762 789 17
TREND IN REVENUE (RS B)

3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 YOY (%)
HCC 5 8 7 5 8 11 9 6 8 10 10 9 9 15.3
IVRCL 5 10 7 7 10 13 9 11 12 16 11 12 12 (0.5)
NCC 7 9 8 7 8 13 10 11 10 11 10 11 12 15.6
Patel 2 4 3 2 3 5 4 3 3 8 5 4 4 27.1
Simplex 4 6 6 6 7 8 10 10 13 14 11 10 11 (16.0)
Aggregate 24 37 31 27 35 49 42 42 46 59 46 46 48 3.6
L&T 41 62 45 55 64 85 69 77 86 105 74 79 98 13.9
EBITDA MARGIN (%)
3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 BP YOY (%)
HCC 10.9 8.7 10.8 11.0 12.9 12.6 10.2 12.0 12.1 14.7 13.0 12.5 12.2 9
IVRCL 10.7 10.8 8.9 8.0 11.1 10.5 8.8 8.0 9.1 8.7 9.2 9.4 9.8 64
NCC 11.5 8.4 10.4 12.6 11.1 8.7 9.4 10.3 8.8 7.6 10.3 10.2 9.9 119
Patel 19.2 11.5 10.9 17.8 17.9 16.5 14.3 18.5 20.8 11.1 15.2 18.3 18.6 -215
Simplex 10.6 9.0 10.0 10.0 10.0 8.5 10.8 9.8 9.1 8.1 10.1 10.4 9.1 -1
Industry 11.7 9.4 10.2 10.7 11.4 10.4 10.0 10.1 9.8 9.7 10.8 10.5 10.2 35
L&T 11.8 14.9 9.4 10.7 11.7 13.3 9.6 9.6 11.0 13.1 10.7 10.0 11.8 87
*Estimates Source: Company
2 March 2010 22
Attractive Valuations; Top Picks are NCC and Simplex
CONSTRUCTION SECTOR INDEX V/S SENSEX Construction companies in our universe delivered 164% average returns since April 2009, outperforming
Construction Sector Sensex the Sensex by 120%. Our estimates suggest strong earnings CAGR of 27% over FY10-12, with the possibility
360 of positive earnings surprises due to improved execution.
280
While the sector is trading at a reported P/E of 18x FY11E; adjusted for BOT/Real Estate projects, the
200
P/E stands at an attractive 13x FY11E earnings.
120
40 Our top picks are Nagarjuna Construction (NCC) and Simplex Infrastructure. We upgrade HCC to Buy
Jan-09
Mar-09
May-09
Jul-09
Oct-09
Dec-09
Feb-10
Aug-09
and downgrade IVRCL to Neutral.
Valuations Attractive ................................................................................................................................ 24
Historical Valuations ................................................................................................................................ 25
Comparative Financials / Valuations ........................................................................................................ 26
2 March 2010 23
Valuations Attractive
Upgrade HCC to Buy; downgrade IVRCL to SUM OF THE PARTS VALUATION (RS/SHARE)
Neutral; CMP TARGET CORE BOT REAL SUBSI- TARGET RATING UPSIDE
Over FY10-12, the construction basket is PER BUSINESS ESTATE DIARIES/ PRICE (%)
expected to deliver revenue CAGR of 21% and (X,FY12) CASH (RS)
net profit CAGR of 27%. HCC 133 14 113 6 58 -18 159 Buy 19.5
IVRCL 322 10 243 92 0 15 349 Neutral 8.5
Since FY06, the construction basket's market NCC 155 12 160 33 12 0 204 Buy 32.0
cap has grown at 4% CAGR and adjusted for Simplex Infra 445 12 569 0 0 0 569 Buy 27.9
fund raising, at (-)4% CAGR.
CONSTRUCTION BASKET: TREND IN MARKET CAP (RS M)
FY04 FY05 FY06 FY07 FY08 FY09 CUR. CAGR FUND ADJ
The construction space is attractive given (1)
RENT (CURR/ RAISING CAGR
inexpensive valuations, (2) book-to-bill ratio of FY06) (FY05 (CURR
~2.7x ensures medium-term revenue visibility, YTD) /FY06)
(3) improving order intake visibility, and (4) HCC 2,141 10,978 44,361 22,917 33,818 11,817 40,460 -2% 12,893 -11%
options to securitize cash flows of operational IVRCL 2,207 8,046 29,705 37,725 53,527 16,220 43,412 9% 10,770 2%
BOT will entail lower funding needs. NCC 1,740 10,021 37,328 33,306 48,734 14,162 39,693 3% 12,571 -8%
Patel 1,094 10,169 23,705 20,175 36,417 8,029 29,746 6% 7,600 -2%
Our top picks are: NCC and Simplex. We Simplex 606 3,728 16,469 15,529 30,068 7,714 22,012 6% 4,613 1%
upgrade HCC to Buy and downgrade IVRCL Total 7,787 42,942 151,568 129,652 202,565 57,942 175,324 4% 48,447 -4%
to Neutral.
COMPARATIVE VALUATIONS
CMP EPS (RS/SH) CAGR PER (X) P/BV (X) ROE (%)
RS/SH FY10 FY11 FY12 % FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12
HCC 133 4.2 6.1 8.1 38.7 31.7 22.0 16.5 2.6 2.4 2.2 10.0 11.4 13.8
IVRCL 322 16.0 18.1 24.0 22.6 20.1 17.8 13.4 2.3 2.1 1.8 11.7 12.3 14.5
NCC 155 9.1 11.6 14.0 23.8 16.9 13.4 11.1 1.8 1.6 1.5 9.5 9.5 10.3
Simplex 445 26.4 35.3 47.4 34.1 16.9 12.6 9.4 2.2 1.9 1.6 13.6 15.9 18.2
Source: MOSL
2 March 2010 24
Historical Valuations
Revenue seen rising 21%, earnings 27% PER (X) AND NET PROFIT (RS M, FOUR QUARTER ROLLING)
The sector is trading at a reported PER of 17.7x
16,000 Construction P/E (x) - RHS PAT (Rs M) - LHS 48
FY11E earnings and adjusted PER of 12.8x
FY11E. We estimate revenue CAGR of 21%
12,000 36
and earnings (adjusted for Sec 80IA tax benefit
withdrawal) CAGR of 27% over FY10-12.
8,000 24
The sector is trading at P/BV of 1.9x 1-yr

forward book value. Sector RoE is 11.5%. 4,000 12
Improved order intake and value unlocking in 0 0
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
subsidiaries/investments will drive re-rating.
P/BV (X) AND ROE (%, FOUR QUARTER ROLLING)
25 Construction P/B (x) - RHS ROE (%) - LHS 6.0
20 4.5
15 3.0
10 1.5
5 0.0
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
2 March 2010 25
Comparative Valuations
BLOOMBERG CODE, CMP BOT/RE BOT/RE EV EPS PE PE EV/ EV/ ROE ROCE BV P/BV
MARKET CAP (RS M) (RS M) (RS/SH) (% OF (RS M) (RS/SH) (X) ADJ EBITDA EBITDA (%) (%) RS/SH (X)
CMP) (X)# (X) ADJ (X)#
Hindustan Construction Mar 09 133 46 34 62,139 3.0 45.0 29.5 14.4 11.7 7.6 11.7 39 3.4
HCC.IN Mar 10 60,524 4.2 31.7 20.7 13.5 10.1 10.0 9.5 51 2.6
40,460 Mar 11 61,184 6.1 22.0 14.4 10.0 7.8 11.4 12.2 56 2.4
Mar 12 61,605 8.1 16.5 10.8 8.4 6.6 13.8 13.9 62 2.2
IVRCL Mar 09 322 107 33 56,384 17.0 19.0 12.7 13.4 10.0 13.4 13.7 134 2.4
IVRC.IN Mar 10 61,771 16.0 20.1 13.5 12.0 9.2 11.7 13.2 139 2.3
43,412 Mar 11 61,107 18.1 17.8 11.9 10.0 7.6 12.3 13.7 155 2.1
Mar 12 61,841 24.0 13.4 9.0 8.1 6.2 14.5 15.7 177 1.8
Nagarjuna Construction Mar 09 155 44 29 55,449 7.0 22.2 15.9 14.8 12.1 9.4 10.2 74 2.1
NJCC.IN Mar 10 58,905 9.1 16.9 12.1 12.7 10.2 9.5 12.2 87 1.8
39,693 Mar 11 62,922 11.6 13.4 9.6 10.8 8.9 9.5 11.1 94 1.6
Mar 12 66,625 14.0 11.1 7.9 9.6 8.0 10.3 11.4 102 1.5
Simplex Infrastructure Mar 09 445 0 0 32,849 26.6 16.7 16.7 8.3 8.3 15.9 16.7 182 2.4
SCP.IN Mar 10 33,581 26.4 16.9 16.9 7.4 7.4 13.6 13.9 206 2.2
22,012 Mar 11 31,911 35.3 12.6 12.6 5.9 5.9 15.9 15.9 239 1.9
Mar 12 33,671 47.4 9.4 9.4 5.0 5.0 18.2 18.6 282 1.6
Patel Engineering Mar 08 426 241 57 36,687 25.5 16.7 7.3 18.8 11.4 19.1 11.5 142 3.0
PEC.IN Mar 09 42,725 27.5 15.5 6.7 16.2 10.7 17.3 10.5 164 2.6
29,746 Mar 10 42,015 27.4 15.6 6.8 13.2 7.9 12.4 11.2 186 2.3
Mar 11 43,947 33.3 12.8 5.6 11.0 6.8 13.9 13.0 210 2.0
Source: MOSL
2 March 2010 26
Companies
2 March 2010 27
Hindustan Construction (HCC IN, Mkt Cap: US$0.9b, CMP: Rs133, Upgrade to Buy)
KEY FINANCIALS (RS M)
Y/E MARCH 2009 2010E 2011E 2012E
1 Order Intake and Execution 2 Debt and Working Capital
Net Sales 33,137 36,834 45,751 54,804 HCC’s order book was Rs155b and book- In December 2009, NWC rose to Rs24b
EBITDA 4,314 4,606 6,031 7,241 to-bill ratio was 4.5x TTM revenues. The from Rs21b in September 2009, due to
Net Profit 760 1,278 1,839 2,459 company has L1 projects of Rs55b. increased receivables
EPS (Rs) 3.0 4.2 6.1 8.1 We expect HCC to post revenue CAGR of Outstanding debt stood at Rs25b in
EPS Growth (%) 7.3 42.2 43.9 33.7 22% over FY10-12. A slowdown in Andhra December 2009 v/s Rs23.2b in March 2009;
P/E (x) 45.0 31.7 22.0 16.5 Pradesh irrigation projects (26% of OB) has and has increased despite equity fund raising
P/BV (x) 3.4 2.6 2.4 2.2 increased challenges on execution. of Rs4.8b. DER stands at 1.2x.
EV/EBITDA (x) 13.0 11.8 9.1 7.7 We expect EBITDA margins to decline 46bp
EV/Sales (x) 1.7 1.5 1.2 1.0 until FY12, given increased mobilization
RoE (%) 7.6 10.0 11.4 13.8 expenses.
RoCE (%) 11.7 9.5 12.2 13.9
STOCK DATA
52-Week Range 162/29
3 Investment in Real Estate/BOT Projects 4 Valuation and View
Major Shareholders (as of Dec-09) %
Lavasa has tied up funding of Rs22b and We expect earnings CAGR of 39% until
Promoter 39.9
peak funding is estimated to be Rs25b in FY12. We upgrade to Buy with SOTP-based
Domestic Inst 15.7
FY11. Cumulatively, until December 2009, price target of Rs159/share.
Foreign 25.9
the project reported revenues of Rs5.5b and Key corporate events to monitor: (i) Lavasa
Others 18.5
net profit of Rs2.2b. IPO is expected by IPO by 3QFY11, (ii) FCCB conversion/
STOCK PERFORMANCE (1 YEAR)
3QFY11, which could unlock value. redemption (US$100m) in March 2011 at
Hindustan Construction Sensex - Rebased HCC invested Rs7b in subsidiaries, Rs248/share, (iii) Lavasa quasi equity
180 comprising Rs4b towards RE and Rs2.6b conversion/repayment (Rs4b) in June/
120 towards BOT projects. Outstanding equity October 2011, and (iv) financial closure of
60 investments, including towards recently BOT projects.
0 awarded NHAI projects is at ~Rs8b.
Feb-09 May-09 Aug-09 Nov-09 Feb-10
2 March 2010 28
HCC: Order Intake from High Gestation Projects

Order book / L1 comprises Andhra projects ORDER BOOK COMPOSITION: HYDRO 56%; WATER 29%
(slow moving), NHAI projects (limited near Pow er Transportation Water Supply & Irrigation Others
3 3 4 3 2
term revenue bookings) and Sawalkote 8 0 0 0 0 0 0 0
15 21 22 21 19 27 31 32 31 29
40
project (under dispute) 40 36 35 34 32 30 16 14 13 14
27 19
HCC's December 2009 order book of Rs155b 48 46 44 44 47 47 43 39 53 54 56 56
includes (i) Rs43b of high gestation hydro power
Mar-07
Dec-07
Mar-08
June-07
Jun-08
Dec 08
Mar-09
Jun-09
Dec-09
Sept-07
Sep-08
Sept-09
projects received since 4QFY09, (ii) slow
moving Andhra projects worth Rs41b, and (iii)
Sawalkote HEP, J&K of Rs20b, in litigation. REVENUE COMPOSITION: HYDRO 40%, TRANSPORT 28%
December 2009 L1 of Rs55b comprises ~Rs30b Pow er Transportation Water Others
5 7 4 8 5 5 0 1 0 1 0 0 0
of NHAI projects (BOT) and Rs16b of hydro 20
14 22 15 18 23 25 25 26 31 25 32
projects. These projects entail high gestation 27
34 28 38 29
periods and limited revenue contribution in the 52 48 49 44 44
34
36 28
41
initial period.
41 46 40 42 46 40
28 25 26 29 33 28 32
Expect FY11 revenue growth of 24%
Dec-06
Mar-07
Jun-07
Dec-07
Mar-08
Jun-08
Dec 08
Mar-09
Jun-09
Dec-09
Sep-07
Sep-08
Sep-09
We expect FY11 revenue growth of 24%,
driven largely by hydro projects received over
FY06- 08, where execution has accelerated. ORDER BOOK TREND (RS B)
HCC plans to enter segments like thermal Order Book (Rs b) Book to Bill (x TTM)
4.8 4.8 4.9 4.6 4.4
4.2 4.3 4.4 4.5
power and buildings, which have lower gestation 4.1 3.9
3.6 3.7 3.6 3.6
3.3 3.2 3.3 3.3 3.2
periods. Increased order intake from these 3.1 3.2
164
155
157
segments will contribute to FY11 revenue
154
122
108
102
102
98
96
97
96
93
94
91
91
79
75
growth.
54
41
Dec-04 42
Jun-05 53
Mar-05
Dec-05
Mar-06
Jun-06
Dec-06
Mar-07
Jun-07
Dec-07
Mar-08
Jun-08
Dec-08
Mar-09
Jun-09
Dec-09
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Source: Company
2 March 2010 29
HCC: Expect Margins to Decline 46bp until FY12

EBITDA margins seen to fall 46bp until FY12 EBITDA AND EBITDA MARGIN TREND (%)
Bunching up of order intake from the hydro 8,000 EBITDA (Rs m) - LHS Margin (%) - RHS 20
17.5
segment (Rs60b since 4QFY09) will lead to
increased mobilization expenses. These are 13.5 13.0 13.7 13.2 13.2
6,000 15
11.9
charged to the P/L account as incurred, and 10.5
impact near-term margins. 9.2 9.1
4,000 10
Mobilization also involves movement of fixed
assets. Under-utilization of these assets in the
2,000 5
interim period leads to increased depreciation/
interest charges.
0 0
Increased share of hydro power projects to
FY10E
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
revenues at 40% will enable the company to
sustain reasonably higher margins.
FIXED ASSET TURN (X)
Expect improvement in fixed asset turns Capex, Rs m (LHS) Fixed asset turn, x (RHS)
Over FY06-09, HCC incurred capex of Rs7.4b, 4.9
4.6
which has lowered asset turn from 4.6x in FY06 4.2 4.2
3.9
to 3.4x in FY09 3.7 3.4 3.5
Going forward, utilization rates are expected to
improve due to (i) increased share of road
business in the order book, (ii) planned entry
into segments like thermal power and buildings,
which have lower asset intensity, and (iii) 1,118 2,117 3,722 2,248 2,520 1,500 1,500 2,000
increasing share of equipments on lease/hire.
FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Source: Company
2 March 2010 30
HCC: Increased Subsidiary Investments

HCC awarded contiguous NHAI projects INCREASED INVESTMENTS / LOANS TO SUBSIDIARIES (RS M) HCC REAL ESTATE: BALANCE SHEET
HCC recently received three contiguous NHAI FY08 FY09 FY10 FY11 FY12 (FY09, RS M)
road projects measuring 256km in West Bengal Investments Equity 3,050

at a project cost of Rs33b. Grant during the HCC Real Estate 2,042 3,045 3,045 3,045 3,045 Debt 800
construction period is Rs10.4b, corresponding Nirmal BOT (Andhra) 315 315 315 315 315 Total 3,850
to 37% of the project cost. Concession period Badarpur BOT 0 1 637 1,275 1,275 Lavasa - Equity 1,900
stands at 25-30 years. Dhule BOT 0 0 740 1,184 1,480 Lavasa - Pref. Capital 300
In one of the projects, HCC was the sole bidder Others 599 295 295 295 295 Vikhroli Corporate Park 540
and in another project, there were no bidders. Total (A) 2,955 3,655 5,032 6,114 6,410 Others 1,110
Loans and Advances Total 3,850
Incremental equity commitment of Rs8b Pune Paud toll road 54 139 139 139 139 Source: Company/MOSL
towards BOT projects Nirmal BOT (Andhra) 369 315 315 315 315
HCC invested Rs4b in the RE sector and Rs2.6b Panchkutir (Vikhroli SRA) 0 810 810 810 810
in BOT projects. Badarpur BOT 0 446 446 446 446
Outstanding equity investment in BOT stands Total (B) 448 1,920 1,920 1,920 1,920
at ~Rs8b. We understand that 25-30% of this Total (A + B) 3,403 5,575 6,952 8,034 8,330
has to be invested upfront as the three recently
awarded projects achieve financial closure over OUTSTANDING EQUITY INVESTMENT OF RS7.9B TOWARDS BOT PROJECTS (RS M)
the next six months. PROJ. EQUITY HCC’S EQUITY EQUITY COMP.
Nirmal BOT in Andhra Pradesh has been COST EQUITY STAKE EQTY INVES. O/S KMS LETION
completed ahead of schedule (three months) Niramal BOT (Andhra Pradesh) 3,150 630 100% 630 630 0 31.0 Jul-09
and a bonus of Rs133m is expected for early Badarpur elevated expressway 5,720 1,720 100% 1,720 1,083 637 4.4 Dec-10
completion. Badarpur Elevated Expressway is Dhule - Maharashtra/MP road proj. 14,200 3,550 37% 1,314 740 574 89.0 Jan-12
expected to be completed by December 2010. Behrampore - Farakka (4 lanes) 13,500 2,871 100% 2,871 0 2,871 103.0 Dec-12
HCC will have options to securitize cash flows Farakka - RaiGanj (4 lanes) 12,000 2,400 100% 2,400 0 2,400 103.0 Dec-12
on these projects to partly meet equity funding. Raniganj - Dhalkola (4 lanes) 7,000 1,380 100% 1,380 0 1,380 50.0 Dec-12
Total 55,570 12,551 10,315 2,453 7,862 380.4
2 March 2010 31
HCC: Working Capital Deterioration Leads to Higher Debt

Working capital expected to improve WORKING CAPITAL CYCLE: EXPECT IMPROVEMENT (DAYS)
Inventories include claims of Rs6b towards AP
irrigation projects, Rs5b towards NHAI and Debtor 1 0 1 1 1 1
Rs1.8b towards the Bandra-Worli sealink in Inventories 189 269 254 306 300 270
Mumbai. Other assets 0 2 0 0 0 0
Loans / Advances 34 48 30 37 35 34
HCC’s working capital increased from Rs20b Loans / Adv subs 3 6 5 21 19 15
in September 2009 to Rs25b in December 2009; Creditors + OCL 109 105 91 114 107 106
largely due to increased receivables. Mobilisation advance 34 25 30 40 36 35
Provisions 7 7 6 18 18 16
Previously, the management expected the NWC 77 187 164 192 194 164
working capital cycle to improve to 42% of NWC (excl. subs) 75 181 158 171 175 148
revenues by the end of FY10 v/s 53% in March
2009. This improvement was to be driven by NET DEBT: FY10 STABLE DESPITE EQUITY FUND RAISING OF RS4.8B
recovery of arrears and dues from NHAI and Net debt Net DER(RHS)
AP irrigation projects. We have factored in 2.2
working capital cycle of 53.2% in FY10 and
44.9% in FY11. 1.5
1.6
1.3 1.2 1.2
In FY09, HCC's net working capital was
171days (Rs17.5b), one of the highest in the
construction industry; largely due to aggressive
accounting policies related to claims recognition.
13,427 15,805 21,679 20,064 20,724 21,772
FY07 FY08 FY09 FY10E FY11E FY12E
2 March 2010 32
HCC: Lavasa Believed to be at Inflexion Point

HCC believes financials are at inflexion point LAVASA: CONSTRUCTED SALES, DEVELOPMENT PLANS (MSF)
The revised business plan for Lavasa factors in
Residential Non Residential 2
development area of 18,000 acres v/s initial 3 0
4 5 4 4
13,500 acres.
2 3
Davse, the first town, will be ready by 2010. 2
11 12 12
The constructed area sales will account for 82% 9 9 9
7 7 8
of total sales. Currently, a large part of period- 1 6
0 0 1 2
1 development pertains to hospitality, institutional 1 1 1
and social infrastructure, which should be largely
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
sold by the end of FY12, and entails a higher
share of constructed development later. LAVASA: PLOT SALES, DEVELOPMENT PLANS (MSF)
The development of 157msf is expected to be
Residential Non Residential
completed by the end of FY22.
Valuations at Rs473b 8 8
The business plan values the project at Rs473b, 2 2
1 2
based on assumption of: a discount rate of 14%, 1 1
0 0 0
1 1
0
1
0 0 0 0 0 0 0
price appreciation of 15% and cost increase of
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
5%. The DCF calculation factors in the base
sale price of: residential villas at Rs3,450/sf, multi LAVASA: PHASE-WISE DEVELOPMENT PLANS (MSF)
storey dwellings at Rs2,950/sf, commercial at RESIDEN COMMER HOSPI INSTITU SOCIAL TOTAL
Rs5,000/sf and retail at Rs6,000/sf. TIAL CIAL TALITY TIONAL
Lavasa is expected to contribute ~13% of the Davse, Mugaon, Bhoini (Ph 1) 12 4 3 10 8 37

incremental development supply in the Mumbai Damanhole / Gadle (Ph 2) 26 1 2 1 1 31
-Pune belt until FY22. Sakhari, Wadavali, CBD 1 (Ph 3) 22 13 0 0 0 35
Bhode, Mose and Saiv, CBD 2 (Ph 4) 39 13 0 0 0 52
Total 99 31 5 11 9 155
Source: Company
2 March 2010 33
HCC: Lavasa Peak Funding Tied-up; 247 Park Operational

Lavasa: peak funding largely tied-up LAVASA FINANCIALS (RS M) LAVASA: SEGMENT-WISE BOOKINGS (RS M):
FY09 1QFY10 2QFY10 3QFY10 10MSF SOLD YTD (RS M)
So far, Lavasa has tied funding of Rs22b and
Revenues 2,120 933 1,029 1,429 FY09 1QFY10 2QFY10 3QFY10
peak funding is estimated at Rs25b in FY11.
Expenditure 770 533 570 786 Land Sales 1,750 2,780 2,100 2,571
Funding comprises equity (Rs3b), quasi-equity
PBT 1,350 400 459 643 Build Space
(Rs9.6b) with the rest being bank debt/customer
PBT (%) 64 43 45 45 Sales 6,320 6,620 8,236 8,497
advances.
Tax 120 136 154 223 Club
Cumulatively, until December 2009, the project
Tax (%) 9 34 34 35 membership 10 10 21 29
reported revenue of Rs5.5b and net profit of
PAT 1,230 264 305 420 Total 8,080 9,410 10,357 11,097
Rs2.2b. The revised business plan estimates
Incremental
revenue of Rs9.3b in FY11 and Rs25b in FY12;
Sales 1,330 947 740
and EBITDA of Rs1.4b in FY10 (v/s Rs1.4b in
* Reclassification of part of land sales as built-up
FY09), increasing to Rs3.5b in FY11 and
sales in 2QFY10 Source: Company
Rs14.1b in FY12.
LAVASA: QUASI EQUITY RAISED (RS M)
Bookings at Lavasa in 3QFY10 were Rs740m,
and total bookings are Rs11.1b. There has been Axis Bank June 2008 2,500
a sequential decline as bookings in 2QFY10 Bank of India October 2008 1,500
were Rs947m and Rs1.3b in 1QFY10. Allahabad Bank December 2008 500
Bennett, Coleman and Company March 2009 813
247 Park 70% leased Indusind Bank June 2009 500
HCC has developed a 1.1msf corporate park in Andhra Bank and United Bank September 2009 750
Vikhroli, Mumbai. ICICI Bank December 2009 2,500
Leasing of 70% of the area has been completed, Allahabad Bank December 2009 500
from 53% in March 2009. The average rentals Total 9,563
in Vikhroli stand at Rs75/sf per month. The deep discount securities entail yield of 14% pa, of which 6% will be paid in cash annually and balance will
be compounded till conversion. Term entails conversion at time of IPO (at lower band of IPO) or any time
during the tenure of the instrument at Rs 100b. In case the IPO does not happen within 5 years, then the
securities are to be converted at Rs100b valuation. Source: Company/MOSL
2 March 2010 34
HCC: 3QFY10 Performance Below Estimates, Poor Execution in Andhra

Poor execution in Andhra leads to below QUARTERLY PERFORMANCE (RS M)
Y/E MARCH FY09 FY10 FY09 FY10E
estimated performance: During 3QFY10,
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
HCC posted revenue of Rs9b (+10.2% YoY),
Sales (Excl JV) 8,659 6,489 8,194 9,795 8,725 7,825 9,026 11,259 33,137 36,834
lower than our estimate of Rs9.7b. EBITDA
Change (%) 18.8 18.3 9.3 -7.2 0.8 20.6 10.2 15.0 7.5 11.2
margins (adjusted for a Rs135m claim write-
Gross Sales 8,949 6,977 8,759 10,295 9,641 8,622 9,450 12,122 34,979 39,834
off) was 12.2% (+10bp YoY), in-line with
Change (%) 23.0 27.1 17.2 -0.8 7.7 23.6 7.9 17.7 188.6 13.9
estimates. Adjusted net profit was Rs218m,
EBITDA 911 839 1,061 1,508 1,151 881 1,017 1,648 4,318 4,696
lower than our estimate of Rs314m. Receivables
Change (%) 15.2 39.5 9.5 15.5 26.3 5.0 -4.1 9.3 17.8 8.8
from AP irrigation projects are Rs6b, including
As of % Sales 10.2 12.0 12.1 14.7 13.0 12.5 12.2 13.6 12.3 12.9
Rs3b over the past 3-4 months. This is
Depreciation 253 296 299 304 301 315 322 323 1,152 1,261
meaningful, given that the execution from the
Interest 391 492 573 650 613 499 496 565 2,105 2,174
water segment in 9MFY10 was Rs7b.
Other Income 124 268 -46 242 19 28 41 -41 588 47
Extraordinary Items 0 0 0 0 0 0 0 0 3 0
Lavasa reports strong results: For Lavasa,
PBT 392 319 143 796 256 95 240 718 1,649 1,309
the company raised Rs2b through deep discount
Tax 84 117 -90 281 74 40 92 239 392 445
securities (total raised so far Rs9.6b) at a yield
Effective Tax Rate (%) 21.3 36.8 -62.7 35.3 28.8 42.0 38.5 33.3 23.8 34.0
of 14% a year. In 3QFY10, Lavasa posted
Reported PAT 308 202 232 515 182 55 147 479 1,257 864
revenues of Rs1.4b and net profit of Rs420m.
Adj PAT 195 -47 300 515 268 280 218 512 964 1,278
Bookings at Lavasa in 3QFY10 were Rs740m,
Change (%) 37.4 - 52.7 43.6 37.2 NA -27.3 -0.6 36.2 32.5
and total bookings were Rs11.1b. There has
E: MOSL Estimates
been a sequential decline, as bookings in
2QFY10 were Rs947m and in 1QFY10 they
were Rs1.3b.
2 March 2010 35
HCC: SOTP Value of Rs159/share; Upgrade to Buy

EQUITY VALUATION OF HCC
METHOD VALUATION VALUE VALUE RATIONALE
(X) (RS M) (RS/SH)
HCC Standalone FY12E PER (x) 14 34,420 113 Premium to industry average
Real Estate
Lavasa NPV, WACC 17% 11,803 39 Based on 25% discount to NPV of expected cash flows
247 IT Park NPV, Cap Rate 10% 4,941 16 Based on NPV of expected rentals from office space
Vikhroli SRA NPV, WACC 15% 898 3 Based on NPV of expected cash flows; consent received for 22 acres
BOT Investments
Andhra Road Book Value 315 1 Book value of investments as at March 2010
Badarpur Expressway Book Value 637 2 Book value of investments as at March 2010
Dhule road project Book Value 740 2 Book value of investments as at March 2010
Less: FCCB outstanding Book Value -5,390 -18 We assume FCCBs will not be converted; conversion price: Rs248, YTM: 6.5%
Total 48,363 159
Source: MOSL
2 March 2010 36
HCC: Financials
INCOME STATEMENT (RS MILLION) BALANCE SHEET (RS MILLION)
Y/E MARCH 2008 2009 2010E 2011E 2012E Y/E MARCH 2008 2009 2010E 2011E 2012E
Net Sales 30,828 33,137 36,834 45,751 54,804 Share Capital 256 256 303 303 303
Change (%) 30.8 7.5 11.2 24.2 19.8 Reserves 9,784 9,792 15,126 16,535 18,418
Net Worth 10,041 10,049 15,430 16,838 18,721
EBITDA 3,667 4,314 4,606 6,031 7,241 Loans 18,449 23,218 20,417 21,917 22,917
% of Net Sales 11.9 13.0 13.7 13.2 13.2 Deffered Tax Liability 1,133 1,132 1,132 1,132 1,132
Depreciation 962 1,152 1,261 1,433 1,558 Capital Employed 29,622 34,398 36,978 39,887 42,770
Interest 1,524 2,105 2,174 2,064 2,212 Gross Fixed Assets 14,097 16,828 18,543 20,043 21,793
Other Income 387 588 47 107 80 Less: Depreciation 4,566 5,547 6,807 8,240 9,799
Share of turnover in JV -7 1 90 104 119
Net Fixed Assets 9,531 11,282 11,735 11,802 11,994
Capital WIP 675 464 250 250 250
PBT 1,561 1,646 1,309 2,745 3,669
Investments 2,955 3,655 5,032 6,114 6,410
Tax 472 392 445 906 1,211
Rate (%) 30.3 23.8 34.0 33.0 33.0 Curr. Assets 27,101 34,674 36,162 41,367 47,515
Inventory 21,439 27,766 30,275 33,843 39,039
Reported PAT 1,088 1,254 864 1,839 2,459 Debtors 45 47 52 65 78
EO Income (net of expenses) 380 494 -414 0 0 Cash & Bank Balance 2,644 1,539 353 1,193 1,144
Loans & Advances 2,954 5,284 5,443 6,228 7,216
Adjusted PAT 708 760 1,278 1,839 2,459 Other Current Assets 20 38 38 38 38
Change (%) 25.5 7.3 68.2 43.9 33.7
E: MOSL Estimates Current Liab. & Prov. 10,640 15,677 16,200 19,646 23,398
Creditors 7,660 10,373 10,788 13,237 15,901
Other Liabilities 2,515 3,653 3,596 4,412 5,300
Provisions 466 1,651 1,816 1,997 2,197
Net Current Assets 16,461 18,997 19,961 21,721 24,116
Application of Funds 29,622 34,398 36,978 39,887 42,770
E: MOSL Estimates
2 March 2010 37
HCC: Financials
RATIOS (RS MILLION) CASH FLOW STATEMENT (RS MILLION)
Basic (Rs) PBT before EO Items 1,561 1,646 1,309 2,745 3,669
Adjusted EPS 2.8 3.0 4.2 6.1 8.1 Add : Depreciation 962 1,152 1,261 1,433 1,558
Growth (%) 39.7 7.3 42.2 43.9 33.7 Interest 1,524 2,105 2,174 2,064 2,212
Cash EPS 6.5 7.5 8.4 10.8 13.2
Less : Direct Taxes Paid 472 392 445 906 1,211
Book Value 39.2 39.2 50.9 55.5 61.7
(Inc)/Dec in WC -1,755 -3,641 -2,150 -920 -2,444
DPS 0.8 0.8 0.8 1.2 1.6
Payout (incl. Div. Tax.) 22.0 19.1 32.9 23.4 23.4 CF from Operations 1,820 870 2,149 4,416 3,785
Valuation (x) (Inc)/Dec in FA -2,194 -2,692 -1,500 -1,500 -1,750

P/E (standalone) 48.3 45.0 31.7 22.0 16.5 (Pur)/Sale of Investments -669 -700 -1,377 -1,082 -296
Cash P/E 20.5 17.9 15.9 12.4 10.1 CF from Investments -2,863 -3,392 -2,877 -2,582 -2,046
EV/EBITDA 13.6 13.0 11.8 9.1 7.7
EV/Sales 1.6 1.7 1.5 1.2 1.0 (Inc)/Dec in Networth 429 -1,007 4,801 0 0
Price/Book Value 3.4 3.4 2.6 2.4 2.2 (Inc)/Dec in Debt 2,938 4,769 -2,801 1,500 1,000
Dividend Yield (%) 0.6 0.6 0.6 0.9 1.2
Less : Interest Paid 1,524 2,105 2,174 2,064 2,212
Dividend Paid 240 240 284 430 575
Profitability Ratios (%)
CF from Fin. Activity 1,603 1,418 -458 -994 -1,788
RoE 7.4 7.6 10.0 11.4 13.8
RoCE 11.2 11.7 9.5 12.2 13.9
Inc/Dec of Cash 560 -1,105 -1,186 840 -49
Turnover Ratios Add: Beginning Balance 2,084 2,644 1,539 353 1,193
Debtors (Days) 1 1 1 1 1 Closing Balance 2,644 1,539 353 1,193 1,144
Inventory (Days) 254 306 300 270 260 E: MOSL Estimates
Creditors. (Days) 121 158 150 150 150
Asset Turnover (x) 1.1 1.0 1.0 1.2 1.3
Leverage Ratio
Debt/Equity (x) 1.8 2.3 1.3 1.3 1.2
2 March 2010 38
IVRCL (IVRCL IN, Mkt Cap: US$0.9b, CMP: Rs322, Downgrade to Neutral)
Y/E MARCH 2009 2010E 2011E 2012E
1 Order Intake and Execution 2 Debt and Working Capital
Net Sales 48,819 53,225 62,456 76,558 IVRCL’s order book in December 2009 IVRCL's net debt rose to Rs19.4b in
EBITDA 4,218 5,158 6,139 7,615 stood at Rs218b (including Rs45b of L1). 3QFY10 (adjusted Rs21b) against Rs14b in
Net Profit 2,290 2,158 2,439 3,242 Order book includes (i) slow moving AP FY09, largely led by deterioration in working
EPS (Rs) 17.0 16.0 18.1 24.0 irrigation projects (Rs49b), (ii) BOT road capital due to the build-up of receivables in
EPS Growth (%) 10.5 -5.7 13.0 32.9 projects (Rs45b). Andhra Pradesh. DER increased to 1.1x v/s
P/E (x) 19.0 20.1 17.8 13.4 Revenue contribution for the initial 12 months 0.8x in FY09.
P/BV (x) 2.4 2.3 2.1 1.8 from these road projects should be limited; Receivables increased to Rs14b-15b in
EV/EBITDA (x) 13.4 12.0 10.0 8.1 thus, execution growth in FY11 would be December2009, up from Rs11.5b in March
EV/ Sales (x) 1.2 1.2 1.0 0.8 constrained, and improve in FY12. 2009.
RoE (%) 13.4 11.7 12.3 14.5 We expect revenue growth of 17% YoY in
RoCE (%) 13.7 13.2 13.7 15.7 FY11 and 23% YoY in FY12.
STOCK DATA
3 Invesments in Real Estate/BOT Projects 4 Valuation and View
IVRCL through IVR Prime Developers Downgrade to Neutral with SOTP based
Promoter 9.7
(80.5% subsidiary) has a BOT portfolio with target price of Rs349/share.
Domestic Inst 13.3
a project cost of Rs93b. Key corporate events to monitor: (i) financial
Foreign 58.5
Equity invested is Rs3.5b and outstanding closure of BOT projects, (ii) fund raising for
Others 18.5
equity investment is Rs14b. IVRCL will have equity investment by IVR Prime Urban, and
options to securitize cash flows on (iii) possible increase in receivables/advances
IVRCL Infra. Sensex - Rebased operational BOT projects, which will enable towards IVR Prime Urban.
600
the company to meet initial commitments.
400
200
0
2 March 2010 39
IVRCL: Order Intake from High Gestation Projects
Revenue/order book composition: not much REVENUE COMPOSITION: NOT MUCH CHANGE SINCE FY02 (%)
Water Roads Building Pow er
change 1 0 1
11 4 12 6
18 12
The order book as at the end of 3QFY10 was 30 27 15 20
21 16 20 27
Rs173b, representing a book-to-bill ratio of 3.4x 18 13
20
14 16 14 12
TTM revenues. Including L1, the order book 33 6 14
was Rs218b. 68 61
55 57 57 54 55 53
Order book composition including L1 includes 39
:irrigation Rs104b (48% of the total), roads Rs50b FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 9MFY10
(23%), buildings Rs49b (23%) and power Rs14b
ORDER BOOK TREND (RS B)
(6%).
4.0 Order book (Rs b) LHS Book to Bill (ttm x) RHS
While many construction companies have added 3.7 3.8 3.7
3.5 3.5
new verticals, clients and geographies, IVRCL’s 3.3 3.3 3.4
3.2 3.2 3.1
business composition over the past few years 3.0 2.9
2.8
has largely remained in a range. 67 66 72 81 95 96 110 127 124 138 143 145 139 150 173
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
See FY11 revenue up 17% v/s 9% in FY10
December 2009 order book of Rs218b (including
Rs45b of L1), comprises (i) slow moving AP
ORDER BOOK COMPOSITION: INCREMENTAL INTAKE FROM ROADS (%)
irrigation projects of Rs49b, and (ii) BOT road
projects of Rs45b, with long gestation periods. Water Roads Building Pow er
0 0 3 8 7 8 5 6
Revenue contribution for the initial 12 months 10 12
20
11
17 16 11 23 20 23
from NHAI projects should be limited as the 18
33 5
20 19 26 22 8
projects will take time to achieve financial 23
closure. 70 61 70
57 58 56 51 56 48
We believe FY11 execution growth will be
constrained but should improve in FY12. We
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 9MFY10
estimate FY11 revenue growth at 17% and FY12
at 23%. Source: Company/MOSL
2 March 2010 40
IVRCL: Margins Stable, NWC Deteriorates

Net debt up ~50% since March 2009 EXPECT STABLE MARGINS; REVENUE CAGR OF 20% UNTIL FY12
IVRCL's net debt increased to Rs19.4b in Revenues (Rs B) EBIDTA Margins (%)
9.9
3QFY10 against Rs14b in FY09, led largely by 9.9 9.8 9.9 9.7 9.8
deterioration in working capital due to a build- 9.3 8.6
8.8
up of receivables in Andhra Pradesh. IVR 8.2 8.2
Prime had temporarily repaid Rs1.5b of debt to 3.9 4.4 7.7 10.5 15.2 23.5 37.0 49.8 53.2 62.5 76.6
IVRCL (raised through borrowings in IVR
FY10E
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Prime Urban). Hence, adjusted debt for IVRCL
is Rs21b, up ~50% since March 2009.
DEBT INCREASED IN FY10 TO RS21B, FROM RS14B IN FY09; LED LARGELY BY NWC DETERIORATION
Debt (Rs b) DER (x)
Receivables increased to Rs14b-15b in 1.4
1.3 1.3
1.1
December 2009, up from Rs11.5b in March 0.9 0.8
1.0 0.9
2009. We expect net working capital to 0.6 0.7
0.4
deteriorate from 130 days in FY09 to 140 days
in FY10. 1.1 1.3 1.9 2.5 6.8 5.6 10.7 14.0 20.5 21.5 22.5
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E
The management stated that of the Rs48b order
WORKING CAPITAL CYCLE: FY10 DETERIORATION DRIVEN BY INCREASED DEBTORS (DAYS)
book from Andhra Pradesh, ~75% are back-
to-back with sub-contractors. Debtor 114 98 66 85 100 90
Inventories 7 13 19 16 16 16
Other assets 104 99 107 107 101 101
Loans / Advances 28 106 39 36 26 36
Loans / Adv subs 3 64 39 34 31 26
Creditors + OCL 92 156 62 81 75 79
Mobilisation advance 38 45 27 30 27 30
NWC 123 176 179 164 171 159
NWC (excl subs) 120 112 140 130 140 132
2 March 2010 41
IVRCL: BOT Projects of Rs93b, Equity Commitment ~Rs14b

Equity outstanding of Rs14b, commitment of IVRCL: BOT PROJECT PORTFOLIO OF RS93B (RS M)
PROJECT NAME LENG CONCE- FIN. PROJ. EQUITY IVRCL IVRCL EXP.
~Rs4b in 6 months as projects achieve
-TH (KM) SSION CLOSURE COST SH.(%) EQUITY COMPLT.
financial closure
Jalandhar - Amritsar Road Project 49 20 yrs Jul-06 3,436 641 100 641 FY11
IVRCL through IVR Prime Developers (80.5%
Salem to Kumarapalayam 54 20 yrs Sep-06 5,020 800 100 800 FY11
subsidiary) has a portfolio of 4 BOT projects,
Kumarapalayam – Chengapalli 49 20 yrs Sep-06 4,215 651 100 651 FY10
including 3 road projects, in which it invested
Chennai Desalination 100MLD 25 yrs May-06 5,679 1,730 75 1,297 FY10
~Rs3.5b of equity. The road projects have been
Sion - Panvel 25 18.9 yrs 14,500 3,500 51 1,785 FY14
delayed by 8-10 months v/s earlier expectations.
Baramati - Phaltan 77.9 25 yrs 3,820 700 75 525 FY14
IOCL Tankage 12 tanks 15 yrs 30,000 2,250 38 855
IVRCL is transferring its BOT portfolio to IVR
Chengapalli - Walayar 42 27 yrs 11,250 4,250 100 4,250 FY14
Prime Urban (62.4% subsidiary). The merger
Indore - Gujarat 155 27 yrs 15,500 6,500 100 6,500 FY14
will be through a share swap and thus the stake
Aggregate 93,419 21,021 17,304
of IVRCL in IVR Prime Urban will increase to
Note: For Indore - Gujarat project, IVRCL quoted revenue share of Rs230m, while the second bidder was grant
80.5% after the restructuring.
of Rs3.9b. Also, IVRCL bagged Chengapalli – Walayar project at revenue share of Rs360m (second lowest
was revenue share of Rs270m) Source: Company/MOSL
Over the past 6-7 months, IVRCL bagged 4
road projects (project cost Rs45b) and tankage
project (cost Rs30b). IVRCL’s proportionate
share of equity commitment is Rs13.9b.
We understand that the first round of equity

infusion in these projects will happen in the next
3-6 months, as they achieve financial closure.
IVRCL will have options to securitize cash

flows on operational BOT projects, which will
enable IVRCL to partly meet the initial
commitments.
2 March 2010 42
IVRCL: 3QFY10 Performance Below Expectations

Operating performance less than QUARTERLY PERFORMANCE (RS M)
estimated; revenue, profit de-grow
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
marginally: IVRCL posted revenue of Rs11.8b
Sales 9,285 11,366 11,896 16,272 10,860 12,178 11,840 18,346 48,819 53,225
(down 0.5% YoY) in 3QFY10, lower than our
Change (%) 37.1 65.1 22.0 23.1 17.0 7.1 -0.5 12.7 33.4 9.0
estimate of Rs13.7b (up 15.5% YoY). EBITDA
EBITDA 820 913 1,085 1,450 996 1,145 1,156 1,861 4,268 5,158
margin was 9.8% (up 64bp YoY) and was
Change (%) 36.6 65.0 0.1 4.5 21.5 25.4 6.5 28.4 18.1 20.9
largely in line with our estimate of 9.6%. Net
As of % Sales 8.8 8.0 9.1 8.9 9.2 9.4 9.8 10.1 8.7 9.7
profit was Rs458m (down 1.5% YoY), lower
Depreciation 102 113 123 134 129 133 139 147 473 548
than our estimate of Rs547m.
Interest 194 304 419 392 389 354 368 392 1,309 1,504
Other Income 26 172 14 87 39 57 39 -20 298 116
Management revises guidance; adjusted
PBT 550 667 556 979 516 715 688 1,303 2,753 3,221
debt up 50% since March 2009:
Tax 115 96 91 181 165 227 229 441 483 1,063
Management has revised its FY10 guidance,
Effective Tax Rate (%) 20.9 14.4 16.3 18.5 32.0 31.8 33.4 33.9 17.6 33.0
and now expects revenue of Rs58b-61.5b, which
Reported PAT 435 571 465 798 351 488 458 861 2,269 2,158
is challenging. IVRCL's net debt increased to
Adj PAT 435 601 465 799 351 488 458 861 2,300 2,158
Rs19.4b in 3QFY10 against Rs14b in FY09,
Change (%) 14.6 70.5 -16.6 9.0 -19.3 -18.9 -1.5 7.8 11.6 -5.7
largely led by deterioration in working capital.
E: MOSL Estimates
IVR Prime repaid Rs1.5b of debt to IVRCL
and hence adjusted debt for IVRCL is Rs21b,
up ~50% since March 2009.
2 March 2010 43
IVRCL: SOTP Value of Rs349/share; Downgrade to Neutral

EQUITY VALUATION
(X) (RS M) (RS/SH)
IVRCL Standalone FY12E PER 10.0 32,423 243 At a discount to industry average
Subsidiaries
- Hindustan Dorr Oliver Market price 1,996 15 25% discount to current stock price
- IVR Prime Urban Developers Market price 12,238 92 25% discount to current stock price
Total 46,657 349
Source: MOSL
2 March 2010 44
IVRCL: Financials
INCOME STATEMENT (RS M) BALANCE SHEET (RS M)
Change (%) 56.0 33.4 9.0 17.3 22.6 Reserves 15,793 17,839 18,439 20,642 23,569
Net Worth 16,060 18,109 18,709 20,912 23,839
Total Expenditure 32,992 44,601 48,067 56,318 68,943 Loans 10,678 13,980 20,480 21,480 22,480
EBITDA 3,614 4,218 5,158 6,139 7,615 Deffered Tax Liability 124 117 117 117 117
% of Net Sales 9.9 8.6 9.7 9.8 9.9 Capital Employed 26,863 32,206 39,307 42,510 46,437
Gross Fixed Assets 4,176 6,624 7,619 8,869 10,369

Depreciation 328 473 548 660 770
Less: Depreciation 984 1,417 1,965 2,624 3,394
Interest 478 1,306 1,504 1,960 2,134
Net Fixed Assets 3,192 5,207 5,654 6,245 6,975
Other Income 45 299 116 121 127
Capital WIP 541 196 200 200 200
Investments 3,409 3,895 5,051 5,153 5,153
PBT 2,853 2,738 3,221 3,640 4,839
Tax 749 478 1,063 1,201 1,597 Curr. Assets 28,852 38,135 42,153 49,858 57,413
Rate (%) 26.2 17.5 33.0 33.0 33.0 Inventory 1,943 2,093 2,333 2,738 3,356
Debtors 6,606 11,430 14,582 15,400 16,780
Reported PAT 2,105 2,260 2,158 2,439 3,242 Cash & Bank Balance 1,772 1,009 2,122 3,785 4,052
Adjusted PAT 2,052 2,290 2,158 2,439 3,242 Loans & Advances 7,806 9,319 8,330 10,582 11,956
Change (%) 45.1 11.6 -5.7 13.0 32.9 Other Current Assets 10,725 14,284 14,786 17,353 21,270
E: MOSL Estimates
Current Liab. & Prov. 9,132 15,226 15,105 18,946 23,305
Creditors 6,196 10,800 10,945 13,557 16,678
Other Liabilities 2,697 3,986 3,937 5,133 6,292
Provisions 238 440 222 256 335
E: MOSL Estimates
2 March 2010 45
IVRCL: Financials
RATIOS CASH FLOW STATEMENT (RS M)
Adjusted EPS 15.4 17.0 16.0 18.1 24.0 Add : Depreciation 328 473 548 660 770
Growth (%) 40.9 10.5 -5.7 13.0 32.9 Interest 478 1,306 1,504 1,960 2,134
Cash EPS 17.8 20.5 20.1 23.0 29.8
Less : Direct Taxes Paid 749 478 1,063 1,201 1,597
Book Value 120.3 134.3 138.8 155.1 176.8
(Inc)/Dec in WC -6,626 -3,951 -4,380 -847 -2,930
DPS 1.4 1.4 1.3 1.5 2.0
Payout (incl. Div. Tax.) 0.1 0.1 0.1 0.1 0.1 CF from Operations -3,715 88 -169 4,212 3,216

P/E (standalone) 20.9 19.0 20.1 17.8 13.4 (Pur)/Sale of Investments -580 -486 -1,156 -102 0
EV/EBITDA 14.5 13.4 12.0 10.0 8.1
EV/Sales 1.4 1.2 1.2 1.0 0.8 (Inc)/Dec in Networth 1,032 1 -1,353 0 0
Price/Book Value 2.7 2.4 2.3 2.1 1.8 (Inc)/Dec in Debt 5,119 3,302 6,500 1,000 1,000
Dividend Yield (%) 0.4 0.4 0.4 0.5 0.6
Less : Interest Paid 478 1,306 1,504 1,960 2,134
Dividend Paid 219 219 205 237 316
Profitability Ratios (%)
CF from Fin. Activity 5,454 1,778 3,439 -1,196 -1,449
RoE 14.0 13.4 11.7 12.3 14.5
RoCE 14.6 13.7 13.2 13.7 15.7
Inc/Dec of Cash -467 -763 1,113 1,663 267
Turnover Ratios Add: Beginning Balance 2,238 1,772 1,009 2,122 3,785
Debtors (Days) 65 84 100 90 80 Closing Balance 1,771 1,009 2,122 3,785 4,052
Inventory (Days) 19 16 16 16 16 E: MOSL Estimates
Creditors. (Days) 73 94 90 95 95
Asset Turnover (x) 1.6 1.7 1.5 1.5 1.7
Leverage Ratio
Debt/Equity (x) 0.7 0.8 1.1 1.0 0.9
2 March 2010 46
Nagarjuna Constructions (NCC IN, Mkt Cap: US$0.9b,CMP: Rs155, Maintain Buy)
Y/E MARCH 2009 2010E 2011E 2012E
1 Order Intake and Execution 2 International Business
Net Sales* 47,002 56,149 70,146 85,296 NCC witnessed a meaningful traction with Post the recent Rs18b order for a road project
EBITDA 3,736 4,644 5,823 6,939 order intake of Rs65b in 9MFY10. Book- in Oman, the company's construction order
Net Profit* 1,788 2,343 2,967 3,591 to-bill stood at 2.8x. book of international subsidiaries has
EPS (Rs)* 7.0 9.1 11.6 14.0 NCC is better placed due to a well-diversified increased to Rs32b (22% of OB).
EPS Gr.(%)* -1.4 31.0 26.6 21.0
order book and continuous effort to add new In FY10, we expect international construction
P/E (x) 22.2 17.0 13.4 11.1
business verticals. subsidiaries to report revenues of Rs9.5b in
P/BV (x) 2.1 1.8 1.6 1.5
EV/EBITDA (x) 13.7 12.7 10.8 9.6 DER at 0.6x (December 2009) is FY10 (up 65% YoY) and Rs13.6b in FY11
EV/ SALES (x) 1.2 1.3 1.1 1.0 comfortable and provides enough flexibility. (up 43% YoY). We expect net profit
RoE (%) 9.4 9.5 9.5 10.3 contribution of Rs475m in FY10 (up 82%
RoCE (%) 10.2 12.2 11.1 11.4 YoY) and Rs748m in FY11 (up 58% YoY).
* For construction segment (consolidated, including
international business)
STOCK DATA
52-Week Range 184/34 3 Investments in BOT/Real Estate Projects 4 Valuation and View
Major Shareholders (as of Dec-09) % NCC has invested Rs11.7b as at December We estimate earnings CAGR of 24% until
Promoter 20.3 2009 in real estate and road BOT projects. FY12; maintain Buy
Domestic Inst 22.0 Financial closure for 1,320MW thermal We remain bullish driven by increasing order
Foreign 35.8 power plant is expected in 1QFY11, and will intake, the possibility of earnings upgrades
Others 21.9
add to SOTP value. and improvement in embedded valuations for
STOCK PERFORMANCE (1 YEAR) Several BOT projects under construction BOT and RE projects.
Nagarjuna Construction Sensex - Rebased (including the 100MW Sorang hydro-power Key events to monitor: ( i) commissioning of
240 unit) are expected to become operational by BOT projects, (ii) financial closure of
160 March 2011, which should improve 1,320MW thermal power.
80 operational cash flows.
0
2 March 2010 47
NCC: Constant Effort to Add Segments/Geographies

ORDER BOOK COMPOSITION: NCC MOVES FROM ROAD CONTRACTOR TO DIVERSIFIED PLAYER (%)
Attempts to move up the value curve; to add
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 DEC-09
new verticals
Roads 63 41 36 36 43 24 15 8 4
During the past two years, NCC has attempted
Buildings 26 33 41 23 17 22 19 21 25
to move up the value curve by undertaking
Water 10 19 12 14 25 22 16 21 18
projects on an EPC basis and has added verticals
Irrigation / HEP - - - 22 11 8 7 5 11
like oil & gas, metals & minerals, and power.
Oil and gas - - - - - 5 11 0 4
Electrical 1 7 12 5 4 6 3 5 4
In 1QFY10, the company received its first large Power - - - - - 3 1 1 7
thermal power plant EPC order of Rs9b from Metals - - - - - - 7 12 5
KVK Nilachal Power Project (350MW), and International - - - - - 10 21 27 22
has tied up with Chinese suppliers for BTG
equipment. REVENUE COMPOSITION (%)
FY03 FY04 FY05 FY06 FY07 FY08 FY09 DEC-09
These verticals now contribute 18% of its order Roads 35 36 23 22 23 21 19 10

book and we expect the contribution to increase. Buildings 47 29 42 29 26 26 34 26
Margins in EPC segments are typically better, Water 15 22 26 32 32 24 23 22
Irrigation / HEP - - 1 8 6 9 7 3
and we believe that after the initial learning
Oil and gas - - - - 0 3 1 2
curve, an increased contribution from these
Electrical 2 13 9 8 9 8 6 5
segments could drive a structural change in
Power - - - - 1 1 1 2
margins for NCC going forward. Metals - - - - - - 4 10
International - - - - 4 8 19 22
NCC is better placed due to a well diversified
order book and continuous effort to add business TREND IN EPC PROJECTS RECEIVED (RS M)
verticals. 1QFY10 Thermal Power 350MW (KVK Nilachal) 9,000

4QFY09 Blasting, Drilling etc works at mines (Singarelli Colleries) 3,600
2QFY09 SAIL project (Structural Works) 3,735
2QFY08 SAIL project (JV with POSCO) 10,805
Source: Company
2 March 2010 48
NCC: International Operations Attain Critical Size
Meaningful traction in order intake BOOK-TO-BILL RATIO OF 2.8X, TO DRIVE REVENUE CAGR OF 20% TILL FY12
NCC witnessed meaningful traction, with order Order book (Rs b) Book to bill - x (ttm)
intake of Rs66b in 9MFY10, v/s initial guidance 3.3 3.3
3.2
of FY10 order intake of Rs65b. Interestingly, 3.0 3.1 3.1
2.8 2.7 2.8 2.7 2.8
2.7 2.6
this is post excluding Rs9b Dubai RE project, 2.6 2.6
which indicates underlying buoyancy.
NCC is also L1 in Salaya airport project in Oman
63 67 70 73 78 90 98 114 122 124 124 122 139 143 148
(Rs11.5b, 30% stake in the consortium). The
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
management revised its order intake guidance
to Rs75b-80b in FY10 v/s Rs65b earlier.
The surge in order intake is driven by segments
Source: Company
like buildings (33% of order intake), irrigation/
water (32%), power (15%) and international NCC: INTERNATIONAL OPERATIONS (RS M) NCC: INTERNATIONAL PROJECT WINS
PARTICULARS FY08 FY09 % VAR. SEGMENT GEOGRAPHY RS M
business (13%).
Revenues 1,731 5,932 243 Water Pipeline Sohar City 773
Initial success in international business Middle East 1,612 5,856 263 Al Batinah Coastal Road Muscat 18,065
NCC made its initial entry in the international Mauritius 119 75 -37 Al Amerat Quriyat Road Muscat 6,781
market in FY07 and the business contributes PAT 88 249 183 Wadi Adai Amerat Road Muscat 6,495
22% of the order book. Middle East -27 212 NA Quriyat City Villas Muscat 8,944
So far, NCC had intake of Rs55b and its Mauritius 115 37 -68 DEWA water pipeline Dubai 7,054
unexecuted order book now stands at Rs32.6b. Net worth 983 1,616 64 Al Aim (588 villas) Abu Dhabi 6,828
Thus, NCC has successfully demonstrated Middle East 102 342 234 Total 54,940
execution capabilities. Mauritius 881 1,274 45 FINANCIALS OF INTERNATIONAL BUSINESS (RS M)
Net profit from its international business is Total Assets 4,732 14,210 200 FY08 FY09 FY10E FY11E FY12
expected to rise from Rs63m in FY08 to Rs1b Middle East 3,847 12,148 216 Revenues 1,466 5,753 9,500 13,599 18,246
in FY12. Mauritius 885 2,062 133 Net Profit 63 260 475 748 1,004
Order book-Middle East 24,245 33,030 36 In % 4.3 4.5 5.0 5.5 5.5
Source: Company/MOSL Source: Company/MOSL
2 March 2010 49
NCC: BOT/RE Investments/Advances at Rs12b

BOT PROJECTS (RS B)
FY10 BOT/RE investments/advances
COST DEBT EQTY STAKE EQTY EQTY O/S STATUS
estimated at Rs15b (%) (%) (%) INVES. EQTY
NCC is expected to have the highest investment BOT Portfolio
book among construction companies at Rs15.1b Transportation
as at FY10, up from Rs2b in FY06. This includes Bangalore-Maddur (Brindavan) 2.5 82 18 33 0.1 0.1 0.0 Completed in June 2006
Rs7b towards real estate projects. Orai-Bhognipur, UP 8.8 68 32 40 1.1 1.0 0.2 Completion in March 2010
For NCC, RE investments have been largely Bangalore -Hosur Elevated 5.8 75 25 64 0.9 0.9 0.0 Commenced on Jan 22, 2010
Merrut-Muzzafarnagar, UP 6.7 77 23 51 0.8 0.4 0.4 Completion in March 2010
constant at Rs7b over FY08-10, as the company
Pondicherry Road Project 3.2 78 22 48 0.3 0.3 0.0 Completion by July 2010
has capped investments and plans to recover
Power
investments made by project launches, as the Himachal Sorang (100MW) 5.8 80 20 67 0.8 0.7 0.1 To be completed by March
market improves. 2011, 50% complete
Investments/advances in BOT increased from Himalayan Green (280MW) 19.6 66 34 54 3.6 0.3 3.4 DPR prepared, Dec 2015
Rs2.3b in FY08 to Rs7.2b in FY10. Andhra Power (1320MW) 69.6 70 30 100 8.9 0.5 8.4 Obtained Land, Environmental
Clearance, Coal Linkage
Six operational projects at the end of FY11 Sub -Total 121.9 16.6 4.2 12.4
For NCC, 2 BOT road projects are operational Share Application Money 0.4 -
and 3 more will start operations in July 2010. Sub - Total 4.6 12.0
Its 100MW Sorang hydro-power project Real Estate
(merchant) will start operations by end FY11. National Games Village,Ranchi 2.8 2,510 9 100 0.3 0.3 0.0
Jubliee Hills, Hyderabad 8.0 6,200 23 25 0.6 0.6 0.0
In 1QFY10, NCC sold 9.5% stake in Gautami
Madhudwada, Andhra Pradesh 4.6 3,807 16 89 0.7 0.7 0.0
(464MW) to GVK at 1.8x P/BV.
HUDA, Hyderabad 55.0 38,080 31 26 4.4 0.8 3.6
NCC also plans to set up a 1,320MW thermal NCC Mauritius 16.0 15,300 4 100 0.7 0.9 0.0
power plant in Orissa. It has received most of Sub -Total 86.3 6.6 3.2 3.6
the clearances and coal linkages, and land NCC Urban Infra 1.2
acquisition (1,800 acres) has been completed. Advances given 2.9
Financial closure is expected in 1QFY11. Sub - Total 7.4
Total 208.2 23.2 11.9 15.6
2 March 2010 50
NCC: 3QFY10 Performance Marginally Below Estimates

During 3QFY10, NCC posted revenues of QUARTERLY PERFORMANCE - STANDALONE (RS MILLION)
Rs11.9b (up 15.6% YoY), in line with our
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
estimate of Rs12.1b (up 18.3% YoY). It posted
Sales 9,709 10,558 10,266 10,981 10,004 10,670 11,870 14,395 41,514 46,940
EBITDA of Rs1.2b (up 31.4% YoY) lower than
Change (%) 27.4 55.9 31.7 -12.4 3.0 1.1 15.6 31.1 19.5 13.1
our estimate of Rs1.3b and net profit of Rs479m
EBITDA 916 1,085 899 838 1,032 1,089 1,181 1,344 3,737 4,644
(up 31.8% YoY), lower than our estimate of
Change (%) 15.9 27.4 4.2 -23.4 12.7 0.4 31.4 60.4 3.9 24.3
Rs538m (up 48.2%YoY).
As of % Sales 9.4 10.3 8.8 7.6 10.3 10.2 9.9 9.3 9.0 9.9
Depreciation 142 149 119 123 127 129 133 145 533 534
3QFY10 revenue grew 15.6% YoY v/s growth
Interest 239 275 238 213 346 322 306 404 964 1,378
of 2% in 1HFY10. The management reiterated
Other Income 9 10 8 15 20 8 14 504 42 547
guidance of Rs45b standalone revenue in FY10,
PBT 544 671 551 517 579 646 756 1,299 2,282 3,278
implying 4QFY10 residual growth of 41% YoY.
Tax 173 248 188 135 196 206 277 241 743 920
For FY10, we factor in revenue of Rs46.9b (up
Effective Tax Rate (%) 31.8 36.9 34.1 26.1 33.9 32.0 36.7 18.5 32.6 28.1
13% YoY), implying 4QFY10 revenue of
Reported PAT 371 423 363 382 382 439 479 1,058 1,539 2,358
Rs14.4b (up 31% YoY). Andhra Pradesh
Adj PAT 371 423 363 382 382 439 479 568 1,539 1,868
accounts for 10% of the order book and
Change (%) 3.9 24.5 -8.4 -27.4 3.1 3.8 31.8 48.7 -5.0 21.4
receivables from the state are Rs500m-600m.
E: MOSL Estimates
9MFY10 EBITDA margin was 10.1% (up 65bp

YoY). This compares with FY09 margins of 9%,
and the management is confident of maintaining
margins at 10-10.5% in FY10. This entails a
margin expansion of 100-150bp in FY10, and is
driven by lower raw material costs and declining
proportion of fixed price contracts (fixed price
contracts account for 38%) in the order book.
2 March 2010 51
NCC: SOTP Value of Rs204/share; Maintain Buy

EQUITY VALUATION OF NCC
(X) (RS M) (RS/SH)
NCC Construction FY12E PER (x) 12 31,044 121.0 At par with industry average
NCC International (Construction) FY12E PER (x) 10 10,035 39.1
BOT Portfolio
A) Operational Projects
- Bangalore Mysore Annuity DCF, Cost of Equity: 14% 196 0.8 Based on NPV of cash flows
- Banglore Elevated Highway Project Book Value 1,073 4.2 Book value of investments till March 2010
B) Projects Under Construction
- Meerut Muzzafarpur Toll Project Book Value 574 2.2 Book value of investments till March 2010
- Orai - Bhognipur and Bhognipur Book Value 936 3.6 Book value of investments till March 2010
- Pondhicherry Tindivanam Road Book Value 378 1.5 Book value of investments till March 2010
- Himachal Sorang Book Value 1,990 7.8 2x book value of investments till March 2010
- NCC Power Projects Book Value 2,500 9.7 Book Value of investments till March 2010
C) Projects Yet To Achieve Financial Closure
- Himalayan Green Book Value 350 1.4 Book value of investments till March 2010
- NCC Power Projects Book Value 574 1.4 Book value of investments till March 2010
Real Estate
- NCC Urban Infra (Land Bank) Book Value 600 2.3 50% of equity investments
- National Games Village (Ranchi) NPV, Cost of Equity: 17% 294 1.1 Based on discount of 50% to NPV of cash flows
- Jubilee Hills (Hyderabad) NPV, Cost of Equity: 17% 516 2.0 Based on discount of 50% to NPV of cash flows
- Madhudwada (Andhra Pradesh) NPV, Cost of Equity: 17% 736 2.9 Based on discount of 50% to NPV of cash flows
- HUDA (Hyderabad) Book Value 825 3.2 Book value of investments till March 2010
Total 52,621 204
Source: MOSL
2 March 2010 52
NCC: Financials
INCOME STATEMENT (RS MILLION) BALANCE SHEET (RS MILLION)
Change (%) 21.0 19.5 13.1 21.1 18.5 Reserves 15,209 16,398 21,931 23,684 25,728
Net Worth 15,669 16,856 22,444 24,197 26,241
Construction Expenses 28,952 34,972 38,913 46,944 55,472 Loans 13,767 17,101 19,709 26,021 30,020
Staff Cost 1,402 1,886 2,357 2,947 3,683 Deffered Tax Liability 167 188 188 188 188
Office and Site Est. Exps 777 920 1,025 1,154 1,307 Capital Employed 29,603 34,144 42,341 50,406 56,449

EBITDA 3,598 3,736 4,644 5,823 6,939
Less: Depreciation 1,423 1,641 2,175 2,916 3,837
% of Net Sales 10.4 9.0 9.9 10.2 10.3
Net Fixed Assets 5,197 4,592 5,839 7,598 8,677
Depreciation 482 533 534 741 921
Capital WIP 143 281 0 0 0
Interest 719 964 1,378 1,834 2,233
Investments 5,648 7,402 11,662 13,131 14,131
Other Income 56 42 547 66 77
Curr. Assets 31,484 33,615 37,170 44,820 51,571
PBT 2,452 2,281 3,278 3,314 3,863 Inventory 5,493 7,495 8,027 9,649 11,374
Tax 832 743 920 1,095 1,276 Debtors 8,677 10,260 12,830 13,992 16,036
Rate (%) 33.9 32.6 28.1 33.0 33.0 Cash & Bank Balance 2,330 1,345 497 2,792 3,088
Reported PAT 1,620 1,538 2,358 2,219 2,587 Loans & Advances 14,923 14,484 15,786 18,357 21,044
EO Expenses 3 11 -490 0 0 Other Current Assets 61 30 30 30 30
Adjusted PAT 1,623 1,549 1,868 2,219 2,587 Current Liab. & Prov. 12,814 11,746 12,330 15,142 17,930
Change (%) 21.6 -4.6 20.6 18.8 16.6 Creditors 8,239 7,966 7,996 9,903 11,702
Consolidated PAT* 1,679 1,788 2,343 2,967 3,591 Other Liabilities 2,497 2,913 3,294 3,991 4,730
Change (%) 25.8 6.5 31.0 26.6 21.0 Provisions 2,078 867 1,040 1,248 1,498
E: MOSL Estimates Net Current Assets 18,670 21,868 24,840 29,678 33,641
E: MOSL Estimates
2 March 2010 53
NCC: Financials
RATIOS CASH FLOW STATEMENT (RS MILLION)
Adjusted EPS 7.1 6.7 7.3 8.6 10.1 Add : Depreciation 482 533 534 741 921
Growth (%) 10.4 -5.5 9.0 18.8 16.6
Interest 719 964 1,378 1,834 2,233
Cash EPS 9.2 9.0 9.4 11.5 13.7
Less: Direct Taxes Paid 832 743 920 1,095 1,276
Consolidated EPS * 7.3 7.8 9.1 11.6 14.0
Book Value 68.7 73.7 87.5 94.3 102.3 (Inc)/Dec in WC -5,872 -4,183 -3,820 -2,543 -3,668
DPS 1.3 1.2 1.6 1.6 1.8 CF from Operations -3,051 -1,148 451 2,252 2,073
Payout (incl. Div. Tax.) 21.5 21.0 21.0 21.0 21.0
(Inc)/Dec in FA -1,593 -67 -1,500 -2,500 -2,000
Valuation (x)
P/E (standalone) 21.9 23.2 21.2 17.9 15.3 (Pur)/Sale of Investments -881 -1,754 -4,260 -1,469 -1,000
EV/EBITDA 13.0 13.7 12.7 10.8 9.6
EV/Sales 1.3 1.2 1.3 1.1 1.0 (Inc)/Dec in Net Worth 4,123 -63 3,725 0 0
Price/Book Value 2.3 2.1 1.8 1.6 1.5 (Inc)/Dec in Debt 2,364 3,334 2,609 6,312 3,998
Dividend Yield (%) 0.8 0.8 1.1 1.0 1.2
Less : Interest Paid 719 964 1,378 1,834 2,233
Profitability Ratios (%) Dividend Paid 348 323 495 466 543
RoE 12.4 9.4 9.5 9.5 10.3 CF from Fin. Activity 5,420 1,985 4,461 4,012 1,222
RoCE 12.3 10.2 12.2 11.1 11.4
Inc/Dec of Cash -105 -984 -848 2,295 296

Turnover Ratios
Debtors (Days) 91 90 100 90 87 Add: Beginning Balance 2,434 2,330 1,345 497 2,792
Inventory (Days) 58 66 62 62 62 Closing Balance 2,329 1,345 497 2,792 3,088
Creditors. (Days) 87 70 75 77 77 E: MOSL Estimates
Asset Turnover (x) 1.3 1.3 1.2 1.2 1.3
Leverage Ratio
Debt/Equity (x) 0.9 1.0 0.9 1.1 1.1
* Consolidated for overseas construction business
2 March 2010 54
Simplex Infrastructure (SINF IN, Mkt Cap: US$0.5b, CMP: Rs445, Maintain Buy)
Y/E MARCH 2009 2010E 2011E 2012E
1 Order Intake and Execution 2 EBITDA Margins and Net Working Capital
Net Sales 46,627 46,271 53,675 67,764 The order book as at December 2009 was EBITDA margins in 3QFY10 were stable at
EBITDA 3,956 4,558 5,394 6,743 Rs106b (up 3.7% YoY), and has been largely 9.5% (up 10bp YoY), despite a revenue
Net Profit 1,318 1,306 1,746 2,346 stagnant for the past 7 quarters. decline of 16% YoY. Management indicated
EPS (Rs) 26.6 26.4 35.3 47.4 While order intake in 3QFY10 has been that margins on the order book are 10.5%,
EPS Growth (%) 29.1 -0.9 33.7 34.4 moderate, bids submitted pipeline is Rs390b, and incremental orders are at similar margins.
P/E (x) 16.7 16.9 12.6 9.4 indicating an improved environment. In 3QFY10, working capital cycle improved
P/BV (x) 2.4 2.2 1.9 1.6 Simplex is among the most diversified by 6-7 days on improved inventory
EV/EBITDA (x) 8.4 6.9 5.9 5.0 companies in geography, verticals and client management. Simplex has the most efficient
EV/Sales (x) 0.7 0.7 0.6 0.5 mix; and is strongly placed to capture growth. working capital cycle, given a higher share
RoE (%) 15.9 13.6 15.9 18.2 of the private sector. Simplex has consistently
RoCE (%) 16.7 13.9 15.9 18.6 reported positive cash from operations.
STOCK DATA
3 Debt and Fixed Asset Turn 4 Valuation and View
Outstanding debt during 3QFY10 was Rs13b We expect Simplex to post revenue growth
Promoter 54.7
v/s Rs12.2b in March 2009 and Rs12.9b in of 16% in FY11 and 26% in FY12.
Domestic Inst 19.0
September 2009. Earnings CAGR of 34% until FY12; maintain
Foreign 12.8
We believe that given a large fixed asset base Buy with a price target of Rs569 (12x FY12E
Others 13.5
of Rs13b (FY10), Simplex can grow earnings).
revenues by 25-30% without substantial
Simplex Infra. Sensex - Rebased capex, which will provide earnings leverage.
600
400
200
0
2 March 2010 55
Simplex: BTB at 2.3x ttm, Lowest in Past 7-8 years
BTB of 2.3x will constrain revenue growth in ORDER BOOK STAGNANT FOR PAST 7 QUARTERS (RS B)
FY11 Order Book Order Intake

89 92 100 107 102 101 100 105 106
Simplex's order book as at December 2009 was 70 71
52 55 53
Rs106b (up 3.7% YoY, up 1% QoQ), and has 46
23 25
been largely stagnant over the past 7 quarters. 10 12
20 17 14 11 11 15 12
7 7 4 6
Order intake in 3QFY10 was Rs12.2b (down
1QFY07
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
15.9% YoY, down 20% QoQ) and both domestic
and Middle East markets posted a decline in
order intake.
BOOK-TO-BILL AT 2.3X, AMONGST THE LOWEST IN PAST 7-8 YEARS…
While order intake in 3QFY10 has been 4.2

4.5 Order book (Rs b) Book-to-bill (x)
4.0
moderate, bids submitted pipeline stands at 3.3 3.3
Rs390b indicating an improved environment 3.0
2.2 2.3
compared with the past 2-3 quarters.
22 27 45 45 51 92 101 106
BTB of 2.3x as at December 2009 is amongst
the lowest in the past 7-8 years, which will FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E
constrain execution.
…TO IMPACT MEDIUM-TERM REVENUE GROWTH
Revenues - RHS (Rs b) Revenue grow th YoY (%)

We expect Simplex to post revenue growth of 64.4 65.8
16% in FY11 and 26% in FY12. 55.8
34.6
17.0 27.2 16.0 26.3
-0.8
6.4 10.0 13.4 17.1 28.1 46.6 46.3 53.7 67.8
FY10E
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
2 March 2010 56
Simplex: Diversified Order Book (vertical, geography, client mix)

Thermal power: 46% of intake in 9MFY10 ORDER BOOK COMPOSITION: SHARE OF POWER SEGMENT HAS INCREASED (%)
FY07 FY08 FY09 FY10
In 9MFY10, 46% of the order intake was
3Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
contributed by thermal power civil construction.
Piling and Ground Engg 4 4 1 4 6 5 6 4 4 4 4 4
We believe that given improved funds availability,
Power (Thermal, Nuclear, Hydro) 12 11 7 11 18 18 17 19 20 24 27 28
better project economics and increased focus
Marine 1 4 10 9 9 8 6 7 6 6 5 4
on execution by private developers, the power
Industrial 18 19 22 20 17 17 17 20 19 18 18 15
sector should be a key contributor to order intake
Roads, Railways and Bridges 29 28 23 21 19 18 15 17 18 17 15 14
even in FY11. Simplex is the market leader in
Urban Utilities 8 8 12 11 14 13 11 15 18 18 17 16
this segment.
Buildings and Housing 28 26 26 24 17 22 27 18 15 13 15 19
Total 100 100 100 100 100 100 100 100 100 100 100 100
This is also positive for margins and the working
capital cycle, given that a large part of private REVENUE COMPOSITION
sector projects are on negotiated basis (and not FY03 FY04 FY05 FY06 FY07 FY08 FY09 9MFY10
on L1). Piling 13 13 14 13 13 10 16 11
Power 15 11 10 28 26 11 12 20
Overseas projects contributed 31% of the order Marine 1 9 6 9 6 4 8 8
intake in 3QFY10 v/s 16% in 1HFY10, indicating Industrial 16 14 22 14 24 34 24 23
improved traction Roads/Rail/Bridges 20 26 20 9 12 14 16 19
Urban Utilities 21 14 17 17 9 10 12 9
Diversified order book Buildings and Housing 14 13 11 10 10 17 12 11
Geography: Domestic (78%); Overseas (22%) Total 100 100 100 100 100 100 100 100
Clients: Government (46%), PPP (9%), Private DIVERSIFIED ORDER BOOK COMPOSITION (%)
DOMESTIC EXPORTS DOMESTIC EXPORTS
(45%).
Govt 37 9 Infra 60 5
Verticals: Infrastructure (65%), Industrial PPP 9 0 Industrial 10 5
(15%), Buildings (20%). Private 32 13 Buildings 8 12
2 March 2010 57
Simplex: Positive Operating Cash Flows

EBITDA stable, working capital improves EXPECT EBITDA MARGINS TO BE STABLE (RS M)
EBITDA margins in 3QFY10 were stable at
EBITDA (Rs M) - LHS EBITDA (%)
9.5% (up 10bp YoY), despite a revenue 10.1 10.4 10.2 10.4 10.3
9.0 9.4
slowdown. The management indicated that 8.2
7.3 7.9
margins on the existing order book were 10.5%,
374 485 821 1,181 1,618 2,675 3,955 4,557 5,394 6,742
and incremental orders are at similar margins.
A change in the composition of the order book
FY10E
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
towards the power segment is positive, given
better margins. NET WORKING CAPITAL: AMONG THE BEST (DAYS)
In 3QFY10, the working capital cycle improved Debtor 148 183 149 131 145 145
by 6-7 days on improved inventory management. Inventories 49 61 62 53 55 55
Other assets 12 9 11 10 10 10
Simplex has consistently maintained tight control
Loans / Advances 21 36 37 26 37 37
on net working capital, leading to positive Creditors + OCL 82 96 85 73 88 88
operating cash flows. Mobilisation advance 33 69 74 64 76 76
Outstanding debt in 3QFY10 was Rs13b against NWC 114 122 98 82 83 83
Rs12.2b in March 2009 and Rs12.9b in
POSITIVE CASH FLOW FROM OPERATIONS
September 2009.
Operating cash flow s Capex Free cash flow s 4,499
3,262
1,011 1,400
621 603
-103 29
-1,159
-1,711
-2,545
-3,668
FY06 FY07 FY08 FY09
2 March 2010 58
Simplex: 3QFY10 Execution Impacted

Execution impacted, EBITDA margins QUARTERLY PERFORMANCE (RS M)
improve, interest costs decline: In 3QFY10,
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Simplex posted revenue of Rs10.7b (down 16%
Net Income 10,181 10,050 12,703 13,876 11,097 10,252 10,668 14,255 46,888 46,271
YoY) v/s our estimate of Rs13.4b (up 8.9%
Change (%) 75.0 76.0 80.4 45.3 9.0 2.0 (16.0) 2.7 66.7 (1.3)
YoY). EBITDA was Rs969m (down 16.2%
EBITDA 1,115 988 1,156 1,123 1,118 1,065 969 1,406 4,277 4,557
YoY) v/s our estimate of Rs1.4b (up 24.9%
Change (%) 91.6 72.8 63.9 37.7 0.2 7.8 (16.2) 25.2 59.9 6.6
YoY). Net profit was Rs231m (down 23.7%
As % of sales 11.0 10.2 9.4 8.3 10.2 10.7 9.5 10.3 9.5 10.2
YoY) v/s our estimate of Rs544m (up 79.9%
Other Income 4 39 37 30 14 30 44 65 186 153
YoY).
Interest 275 324 436 392 348 289 262 263 1,418 1,161
Depreciation 255 302 370 374 381 383 391 416 1,299 1,571
Revenue guidance lowered: Revenue
PBT 552 378 387 386 404 423 359 792 1,685 1,978
growth is expected to be flat in FY10 v/s earlier
Tax 169 98 134 88 147 144 129 253 477 673
guidance of 10% growth (stated in October
Tax/PBT 30.6 25.9 34.7 22.7 36.4 34.0 35.8 32.0 28.3 34.0
2009) and initial expectation of 15-20%. We are
PAT 383 280 253 299 257 279 231 539 1,208 1,306
surprised by the poor execution in FY10 (we
Adjusted PAT 421 303 303 299 257 279 231 539 1,324 1,306
now factor in revenue growth of -1.3% YoY).
As % of sales 4.1 3.0 2.4 2.2 2.3 2.7 2.2 3.8 2.8 2.8
Change (%) 114.7 59.2 37.3 (28.0) (39.0) (7.7) (23.7) 80.5 29.7 (1.4)
In 3QFY10, the working capital cycle improved
E: MOSL Estimates
by 6-7 days on improved inventory management.
Outstanding debt in 3QFY10 was Rs13b against
Rs12.2b in March 2009 and Rs12.9b in
September 2009.
2 March 2010 59
Simplex: Financials
INCOME STATEMENT (RS M) BALANCE SHEET (RS M)
Change (%) 64.4 65.8 -0.8 16.0 26.3 Reserves 7,432 8,923 10,113 11,703 13,841
Net Worth 7,531 9,023 10,212 11,802 13,940
Materials Consumed 24,318 40,821 39,978 46,268 58,481 Loans 7,493 12,205 12,693 13,193 13,693
Other Admin. Exp. 1,128 1,849 1,735 2,013 2,541 Deffered Tax Liability 371 579 579 579 579
Capital Employed 15,396 21,806 23,484 25,573 28,211
EBITDA 2,675 3,956 4,558 5,394 6,743
% of Net Sales 9.5 8.5 9.9 10.1 10.0
Less: Depreciation 1,272 2,052 3,623 5,310 7,268
Net Fixed Assets 6,295 10,014 9,443 9,756 10,298
Depreciation 643 1,299 1,571 1,688 1,958
Capital WIP 243 139 139 139 139
Interest 1,007 1,418 1,161 1,243 1,446
Investments 99 201 201 201 201
Other Income 246 447 153 182 217
Curr. Assets 21,143 29,001 34,540 39,616 47,891
PBT 1,271 1,686 1,979 2,646 3,555 Inventory 4,741 6,761 6,972 8,088 10,211
Tax 370 477 673 899 1,209 Debtors 11,497 16,676 18,382 21,323 26,920
Rate (%) 29.1 28.3 34.0 34.0 34.0 Cash & Bank Balance 1,232 1,002 3,228 3,293 2,034
Loans & Advances 2,839 3,312 4,691 5,441 6,869
Reported PAT 901 1,208 1,306 1,746 2,347 Other Current Assets 834 1,250 1,268 1,471 1,857
Adjusted PAT 1,021 1,318 1,306 1,746 2,346
Change (%) 90.1 29.1 -0.9 33.7 34.4 Current Liab. & Prov. 12,383 17,548 20,839 24,137 30,316
E: MOSL Estimates Creditors 12,267 17,432 20,839 24,137 30,316
Provisions 116 116 0 0 0
E: MOSL Estimates
2 March 2010 60
Simplex: Financials
RATIOS CASH FLOW STATEMENT (RS MILLION)
Adjusted EPS 20.6 26.6 26.4 35.3 47.4 Add : Depreciation 643 1,299 1,571 1,688 1,958
Growth (%) 65.6 29.1 -0.9 33.7 34.4 Interest 1,007 1,418 1,161 1,243 1,446
Cash EPS 31.2 50.7 58.1 69.4 87.0
Less : Direct Taxes Paid 370 477 673 899 1,209
Book Value 152.2 182.4 206.4 238.6 281.8
(Inc)/Dec in WC -1,807 -2,923 -23 -1,712 -3,355
DPS 2.0 2.0 2.0 2.7 3.6
Payout (incl. Div. Tax.) 12.8 9.6 8.9 9.0 8.9 CF from Operations 744 1,002 4,015 2,964 2,395

P/E (standalone) 21.6 16.7 16.9 12.6 9.4 (Pur)/Sale of Investments -46 -102 0 0 0
EV/EBITDA 10.6 8.4 6.9 5.9 5.0
EV/Sales 1.0 0.7 0.7 0.6 0.5
(Inc)/Dec in Networth 4,177 607 0 0 0
Price/Book Value 2.9 2.4 2.2 1.9 1.6
Dividend Yield (%) 0.4 0.4 0.4 0.6 0.8 (Inc)/Dec in Debt 617 4,711 488 500 500
Less : Interest Paid 1,007 1,418 1,161 1,243 1,446
Profitability Ratios (%) Dividend Paid 116 116 116 156 208
RoE 19.8 15.9 13.6 15.9 18.2 CF from Fin. Activity 3,671 3,784 -789 -899 -1,155
RoCE 18.1 16.7 13.9 15.9 18.6
Inc/Dec of Cash 807 -230 2,226 65 -1,259
Turnover Ratios
Add: Beginning Balance 425 1,232 1,002 3,228 3,293
Debtors (Days) 149 131 145 145 145
Inventory (Days) 62 53 55 55 55 Closing Balance 1,232 1,002 3,228 3,293 2,034
Creditors. (Days) 91 79 97 97 97 E: MOSL Estimates
Asset Turnover (x) 2.2 2.5 2.0 2.2 2.5
Leverage Ratio
Debt/Equity (x) 1.0 1.4 1.2 1.1 1.0
E: MOSL Estimates
2 March 2010 61
N O T E S
2 March 2010 62
N O T E S
2 March 2010 63
For more copies or other information, contact

Institutional: Navin Agarwal. Retail: Manish Shah
Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal Oswal Securities Limited (hereinafter referred
as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed
to any other person in any form.
The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt or any of its affiliates or employees
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Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement Hindustan Construction IVRCL Nagarjuna Constructions Simplex Infrastructure
1. Analyst ownership of the stock No No No No
2. Group/Directors ownership of the stock No No No No
3. Broking relationship with company covered No No No No
4. Investment Banking relationship with company covered No No No No
This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless, MOSt
is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.
2 March 2010 64

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March 2010

Indian Construction: Work-in-Progress ..................................................................................... 4-5

BOT/Real Estate Projects Provide Unlocking Opportunities ............................................... 11-13

3QFY10: Execution Impacted, Margins Stable .................................................................... 19-22

Companies ............................................................................................................................... 27-61

Hindustan Construction ..................................................................................................... 28-38

IVRCL ................................................................................................................................. 39-46

Nagarjuna Construction ..................................................................................................... 47-54

Simplex Infrastructure ....................................................................................................... 55-61

*Prices as of Friday, February 26, 2010

Our First NTD report Preface

2.5 Second trillion dollar GDP

We now release a TRILOGY of reports - Cement, Construction and Engineering - all

We have lined up many more NTD Thematics in 2010. Stay tuned!

Indian Construction: Work-in-Progress

Indian Construction: Work-in-Progress

Key investment risks

Improving Order Intake Visibility to Revive Deteriorated Book-to-Bill Ratio

Order Intake: Book-to-Bill Declines; Execution Poor ................................................................................ 7

Order Book Analysis: NCC, Simplex Better Positioned ............................................................................. 8

Andhra Pradesh: Execution, Finances Impacted in 3QFY10 ..................................................................... 9

Execution to Improve (still below historical CAGR); Margins Stable ...................................................... 10

Order Intake: Book-to-Bill Declines; Execution Poor

Order Book Analysis: NCC, Simplex Better Positioned

Andhra Pradesh: Execution, Finances Impacted in 3QFY10

Execution to Improve (still below historical CAGR); Margins Stable

improved EBITDA margins, despite poor FY09 FY12E

BOT/Real Estate Projects Provide Unlocking Opportunities

Investments in Subsidiaries Offer Unlocking Opportunities ..................................................................... 12

Expect Improved Embedded Valuations ................................................................................................... 13

Investments in Subsidiaries Offer Unlocking Opportunities

Expect Improved Embedded Valuations

Working Capital Management and Interest Cost Hold Key to Profitability

Working Capital Impacted Given Build-up of Receivables ...................................................................... 15

Negative Operating Cash Flows: Concerns Exaggerated ......................................................................... 16

Working Capital Impacted given Build-up of Receivables

Negative Operating Cash Flows: Concerns Exaggerated

revenue grew 28% CAGR.

 Reasons for change in operating cash flow

Interest Costs: Declined in 3QFY10; Savings Expected to be Restricted in FY11

Decline in Borrowing Costs to be Restricted in FY11

3QFY10: Execution Impacted, Margins Stable

3QFY10 Analysis: Execution Impacted, Margins Stable ........................................................................ 20

Management Guidance: Several Downgrades ......................................................................................... 21

Key Quarterly Trends ............................................................................................................................... 22

3QFY10 Analysis: Execution Impacted, Margins Stable

ORDER INTAKE (RS B): INITIAL SIGNS EXECUTION IMPACTED REVENUE

Engineering. 100 50%

 Despite poor execution, interest costs as a 60 30%

Management Guidance: Several Downgrades in 3QFY10

Key Quarterly Trends

TREND IN REVENUE (RS B)

Attractive Valuations; Top Picks are NCC and Simplex

and downgrade IVRCL to Neutral.

Valuations Attractive ................................................................................................................................ 24

Historical Valuations ................................................................................................................................ 25

Comparative Financials / Valuations ........................................................................................................ 26

 The sector is trading at P/BV of 1.9x 1-yr

 Improved order intake and value unlocking in 0 0

P/BV (X) AND ROE (%, FOUR QUARTER ROLLING)

25 Construction P/B (x) - RHS ROE (%) - LHS 6.0

HCC: Order Intake from High Gestation Projects

HCC: Expect Margins to Decline 46bp until FY12

Reasons for change in operating cash flow

Despite poor execution, interest costs as a 60 30%

The sector is trading at P/BV of 1.9x 1-yr

Improved order intake and value unlocking in 0 0