ChrysCapital finds a bargain in India’s NCC

The cost of the transaction has not been disclosed, but a source close to the deal confirmed to AVCJ that ChyrsCapital paid 50% less per NCC share than Blackstone had previously paid, as a result of market valuations’ natural “correction” process.

NCC’s operations encompasses the areas of buildings and housing, transportation, environment, power and electricals. While NCC is touted as one of the largest construction companies in India, the valuation of its shares dropped due to a readjustment of market valuations the past few months, which a source said contributed to the deal’s appeal. “Blackstone paid over two times ChrysCapital’s price. That’s really a timing thing. Blackstone just overpaid.”

 “I think the Indian markets have been corrected the past few months in many sectors, and construction is one sector that happened to have been corrected between 40 and 50% the past six months,” AVCJ’s source said.
ChrysCapital has made half a dozen transactions in the construction space recently, and the NCC stake seems to fit with the firm’s strategy. Founded in 1978, the company claimed a turnover of INR1,338 crore ($299 million) for the third quarter of FY10-11, up 13% from the previous year. The company also reported EBIDTA of INR127.59 crore ($28.5 million) and a net profit of INR40.43 crore.

An August 2008 statement from Blackstone announced that the PE major would invest $150 million into NCC in two tranches, paying an INR.2 premium per equity share. Domestic reports suggest that Blackstone holds approximately 10% of NCC. ChrysCapital’s stake in NCC is not as large as Blackstone’s, but is not far off.

Managing Director of IDFC Raja Parthasarathy further explains the valuation phenomenon, noting that a rise in interest rates across the board has accelerated a public market sell-off of infrastructure companies. Investors sought to outrun the interest spike, as the event was set to “negatively impact company earnings for the foreseeable future.” These events combined with the natural challenges and delays that plague the vast majority of infrastructure projects, have brought construction valuations to more reasonable levels.

 “Many of these stocks had run ahead of themselves, simply on the basis of a growing order book without an accompanying stream of current and near-term visible cash flows to justify their earlier high valuations,” he said. “With multiples down to more reasonable levels now, investors will need to assess execution capabilities and defensibility of margins in order to separate the wheat from the chaff.” 

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• Topics
• South Asia
• Infrastructure
• The Blackstone Group