National Building Construction Corporation (NBCC) reported a strong 38.8% yoy
increase in revenue for 4QFY2016 to Rs2,251cr, which is above our estimate of
Rs2,130cr. Revenue growth during the quarter was on account of 45.6% yoy
increase in the PMC segment revenue to Rs2,068cr. The segment accounted for
92% of the company’s 4QFY2016 revenues. Despite strong execution, NBCC
however disappointed us on the margin front; the EBITDA margin for the quarter
came in at 5.3%, lower by 324bps on a yoy basis. The miss in the operating
performance percolated down to the PAT level. The PAT at Rs141cr is lower than
our expectation of Rs186cr while the reported PAT margin declined 196bp yoy to
6.3% for 4QFY2016.
NBCC‘s order book stands at Rs37,000cr as of 4QFY2016, indicating an increase
of over 100% on a yoy basis. The current order book to Last Twelve Month (LTM)
sales ratio stands at 6.3x.
Outlook and valuation: Considering the reviving award activity environment, we
expect NBCC to report ~Rs20,000cr of order inflows each year for FY2017-18E.
Also, emerging opportunities in the redevelopment space, the government’s
initiative of developing ‘Smart Cities’ and the company’s cash rich status should
aid its growth. We expect the company to report 27.9% and 45.5% top-line and
bottom-line CAGR during FY2016-18E, respectively. Given the bid pipeline and
the company’s huge order book, we are convinced about the company’s earnings
growth prospects over the next few years. Accordingly, we have assigned 20.0x
P/E multiple to our FY2018E EPS of Rs55/share to arrive at a price target of
Rs1,098. Given the 12% upside potential in the stock from the current level, we
maintain our Accumulate rating on the stock.

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