National Building Construction Corporation (NBCC) a Navratna company, is
one of the largest Public Sector Enterprises (PSEs) in the construction space. Its
Project Management Contract (PMC) division (~85% of FY2015 revenues) is a
cash cow business, which gets large orders on nomination basis and enjoys a
negative working capital cycle.
Huge opportunities in the pipeline…
NBCC reported an order book of Rs30,000cr as of 2QFY2016-end, reflecting 5.8x
last twelve month (LTM) revenues. Of the Rs30,000cr order book, the PMC
segment accounted for a major 92% (includes ~Rs3,500cr Kidwainagar redevelopment
project), whereas the remaining is from Real Estate (5%) and EPC
(3%) segments. Considering the emerging bid pipeline for re-development works
from Delhi and other State governments, and with Smart City projects to take-off
shortly, we expect NBCC order book to grow 2-fold during 1HFY2016-18E to
Revenues and PAT to report 26.7% & 32.7% CAGR during FY2015-18E
We expect NBCC to report a 26.7% revenue CAGR during FY2015-18E (to
Rs9,506cr), mainly driven by an estimated 29.3% revenue CAGR from the PMC
segment, where re-development projects would contribute the maximum. We
expect NBCC to report 41.5% EBITDA CAGR during the same period, led by
increased contribution from the PMC segment, which is likely to experience
margin expansion (PMC segment’s EBIT margin to expand from 7.3% in FY2015
to 8.9% in FY2018E). Owing to lower other income growth assumption, we expect
NBCC to report a 32.7% PAT CAGR during FY2015-18E to Rs653cr.
Long term story; recommend BUY…
We have a strong positive view on NBCC, given its growth prospects as reflected
by its strong order book of Rs30,000cr (5.8x LTM revenues). Also, emerging
opportunities in the re-development space, government initiative of developing
Smart Cities, and the company cash rich status, should aid its growth. Given
the bid pipeline and huge order book, we are convinced about the strong
earnings growth potential of the company for the next few years. Accordingly, we have
conservatively assigned 20.0x P/E multiple to our FY2018E EPS of Rs54/share; we
arrive at a price target of `1,089. Given the 22% upside potential in the stock from
the current level, we initiate coverage on the stock with a Buy recommendation.

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