The story so far
National Building
Construction Corporation – NBCC is the only GOI enterprise engaged in
all the 3 business verticals – Project Management Consultancy, Civil
Construction & Real Estate. Project Management Consultancy – PMC
accounts for 90% of its Rs35bn revenues and its clients include central
government organizations. The balance 10% of its revenues comes from
civil works and real estate business which involves re-development of
old government colonies under the General Pool Residential Accommodation
– GPRA in various categories. NBCC employs more than 2200 people and
came out with its maiden IPO in April 2012 when the GOI divested 10% of
its holding to the Public.
The story ahead
As most of the government
departments do not have an extended project execution arm for
undertaking civil construction projects, NBCC fits the bill as an
implementing agency and NBCC outsources the civil construction from
contractors shortlisted through a competitive bidding process. Most of
its business is on nomination basis as it is a Public Works Organization
similar to a PWD. The unique positioning of NBCC as an implementing
agency for GOI related civil works where 90% of the business is on
nomination basis ensures steady order inflows to NBCC which is
reflective of the fact that its top-line grew at 10% over the last two years when the business environment remained quite challenging.
NBCC with an order book
of Rs132bn executable over a two year period trades at 2.5x book at 11x
historical earnings and is a debt free company generating an ROI of 25%
with cash per share of Rs110 (Rs13bn cash on books of which Rs9bn is
advances from government departments). NBCC generates more than Rs2bn
free cash annually and we like the asset light business model of doing
business with the money of its customers and are fine with an 8% EBIDTA
margin business since the business model has negative working capital.
LKP Securities has
fancied this 52 year old Mini Ratna PSU owned by the Ministry of Urban
Development ever since the IPO in April 2012 because of its unique
business model despite its presence in the real estate segment as these
re-development projects are gaining traction with sizeable revenue
streams and have a 10% project management fee to offer. LKP recommends a BUY on NBCC trading at 8x one-year forward earnings with a one-year price target of Rs225.
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