NBCC is one of the valued Navratna companies and amongst very few public sector companies engaged in the three verticals of PMC, EPC and Real Estate development business. NBCC became the fifteenth Navratna Company on June 23, 2014 among 250 PSUs in India. NBCC is under the administrative control of the Ministry of Urban Development, which provides project management consultancy services for construction projects, civil infrastructure for power sector and real estate development. The Company has earned a niche for itself in construction of Green Buildings. Office of The Indian Institute of Corporate Affairs at Manesar (Haryana); CSOI at New Delhi; Aayakar Bhawan at Noida (UP); SIB at Kolkata; Coal India Building at Kolkata etc. are some important Green Buildings by NBCC. The Government of India along with the governments of the respective states have taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart Cities, is a prime opportunity for the real estate companies like NBCC. Government initiatives like India’s Prime Minister approved the launch of Housing for All by 2022, the Sardar Patel Urban Housing Mission; 30 million houses will be built in India by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership (PPP) and interest subsidy. The Government of India has relaxed the norms to allow Foreign Direct Investment (FDI) in the construction development sector. This move should boost affordable housing projects and smart cities across the country. The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). This move will enable easier access to funds for cash-strapped developers and will create a new Investment avenue for institutions and high net worth individuals, and eventually ordinary investors. The Government of Maharashtra announced a series of measures to bring transparency and increase the ease of doing business in the real estate sector. The State Government of Kerala has decided to make the process of securing permits from local bodies for construction of houses smoother, as it plans to make the process online with the launch of software called “Sanketham”. This will ensure a more standardised procedure, more transparency, and less corruption and bribery. The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.1 billion in the period April 2000-June 2015. Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower and hiring qualified professionals in areas like project management, architecture and engineering. The growing Flow of FDI into Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards. NBCC is taking up more and more work in remote and difficult areas to encash business opportunities with assured profit. A major work is being taken up in remote Arunachal Pradesh for development of roads in dense jungle area for 185 km valuing approximately Rs. 1400 crore. NBCC has signed MOUs with various foreign parties like: M/s Al Naba Services LLC, Sultanate of Oman; M/s Construction Industry Development Board Holdings Sdn Bhd., Malaysia; M/s Form Yapi Malzemeleri Insaat Samayi Ticaret Ltd, Turkey etc. NBCC is into the Real Estate business since 1988 and has many Real Estate projects to its credit both residential and commercial at various locations across the country which includes Kolkata, Delhi, Lucknow, Cochi, Cuttack, Vadodara, Ghaziabad, Faridabad etc. NBCC has land bank of around 132 acres and is likely to generate sizable business and steady income over a longer period of time. NBCC has achieved its target revenue of Rs. 4,200 crore, PAT margin of 5.6 % and order inflow of Rs. 5,000 crore in FY15 as per the MoU signed with Government of India. Considering the current order book, its ongoing projects and strong opportunities, it can be expected that its revenues can show robust growth at 38.1 % CAGR to Rs. 10968.0 crore in FY16-18E. EBITDA is expected to grow at 48.2 % CAGR to Rs. 759.8 crore in FY16-18E. NBCC’s bottom line has grown at 19.0 % CAGR during FY10-15 largely led by its robust top line growth and zero interest expenses. The government has issued revised guidelines for central public sector enterprise (CPSEs) to pay annual dividend of 30 % of PAT or 30 % of Government of India's equity, whichever is higher. This is in lieu of previous guidelines in 2004 communicating a dividend policy of 20 % of PAT or 20 % of equity, whichever is higher. However, this should not impact NBCC much as it has paid 47 % of PAT as dividend in FY16. Going forward, it is expected that NBCC to maintain a similar dividend pay-out ratio. The average RoE and RoCE of NBCC during FY10-15 have remained at the level of 21.6 % and 30.5 %, respectively, on the back of a strong bottom line show. They were at 20.7 % & 31.2 % in FY16, respectively. Going ahead, it is expected that RoE and RoCE to bounce to 29 % & 44.6 %, respectively, in FY18E with anticipated bottom line growth. NBCC witnessed strong order inflows of Rs. 17517 crore in FY16. Its current order book is strong at Rs. 37,000 crore, 6.4x TTM construction revenues, providing strong revenue visibility. The order book consists of 85 % from PMC, 10 % from real estate and 4-5 % from EPC division. The management expects approvals for redevelopment of three old colonies worth Rs. 25000 crore to come from government by July, 2016. Further, NBCC will also have to make an equity investment of Rs. 300-500 crore in these for the first six months. Given the strong order book, huge opportunities, it is expected that its topline, bottomline to grow at a CAGR of 38.1 % & 36.6 % in FY16-18E to Rs. 10968.0 crore & Rs. 576.3 crore, respectively. NBCC will be a key beneficiary of the government’s ambitious schemes like Housing for all and Smart Cities mission aimed at urban development. Further, NBCC is already implementing a few smart townships like Kidwai Nagar and New Moti Bagh. It is looking to provide an all-round smart city solution including both, construction and technical (IT/Electronic) services for which it had tied up with IBM and a Malaysian JV firm. NBCC has asset light business model, as it operates in Project Management & Consultancy (PMC) services which contribute 85 % of total revenues and more than 65 % of the PBT. In FY15, the company enjoyed high RoE and RoCE above 22.6 % and 35.2 % respectively and expect to maintain the same. The company is debt-free and thus has no interest cost. It maintains a current ratio of more than 1.2x which is clear evidence of its robust fundamentals. At the CMP of Rs. 967.55, the stock is trading at 28.29x FY17E P/E and 22.39x FY18E. Given the healthy order book in the PMC division and cash rich balance sheet, NBCC’s revenues have grown at a CAGR of 14.00 % during FY12- FY16 despite the challenges being encountered by the industry. Going ahead, NBCC’s can show a growth in revenues and net profit at a sturdy CAGR of 38.1 % and 36.6 %, respectively, during FY16-18E. Also being a cash rich balance sheet company it will have healthy return ratios. On SOTP basis the valuation of NBCC’s PMC business on the DCF basis comes at Rs. 528 per share & redevelopment opportunities at Rs. 500 a share. The value of real estate business comes at Rs. 95 a share, while the value of EPC business comes at Rs. 20 a share. Giving me the value of Rs. 1143.00 per share. The company can post Earnings per share (EPS) of Rs. 34.20 in FY17E and Rs. 43.20 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
|BUSINESS SUBSIDIARY||Value per Share(₹)|
|Real Estate Business||95.00|
TOTAL VALUE PER SHARE
|SALES (₹ Crs)||4,621.00||5,749.20||7,430.50||9,613.90|
|NET PROFIT (₹ Cr)||277.30||308.80||410.00||518.60|
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