1 NBCC (India) Ltd. December 30 th , 2016 NBCC (India) Ltd.(NBCC) INDUSTRY Construction No. of Shares (Crs) 60.00 Face value (Rs) 2.00 Mkt. Cap (Rs. Crore) 14154.00 Price (29/12/2016) 235.90 Book Value (Rs) 25.88 P/BV 9.11 BSE Code 534309 NSE Code NBCC Bloomberg NBCC IN Reuters NATO.BO Avg. Weekly Volume 273516 52 W H/L (Rs) 299.20/162.00 Shareholding Pattern % Promoters 90.00 DIIs 0.77 FIIs 2.98 Body Corporate 1.41 Total Public 4.84 Total 100.00 ( As on September 30, 2016) Recommendation BUY Particulars (in Rs.Crs)^ H1FY17 H1FY16 Variance (%) FY14 FY15 FY16 FY17e FY18e Net Sales(Includes OOI*) 2530.74 2158.55 17.24 4070.10 4399.85 5838.27 6939.37 10118.15 Operating Profit (Excl OI) 121.01 101.44 19.29 239.35 289.39 352.57 575.97 728.51 Net Profit 116.30 108.60 7.09 257.45 278.28 311.13 368.07 597.07 Operating margin (%) 4.78 4.70 1.74 5.88 6.58 6.04 6.30 7.20 Net Profit Margin (%) 4.59 5.03 -8.75 6.33 6.32 5.33 5.30 5.90 1.94 1.81 7.18 4.29 4.64 5.19 6.13 9.95 Company Background National Buildings Construction Corporation Ltd. (NBCC) is a 56 year old Navratna PSU company. The company is present in three main segments, i.e. (i) Project Management Consultancy (PMC), (ii) Real Estate Development (RE) & (iii) EPC Contracting. The PMC contributes ~85-90% of its annual turnover. It gets PMC contracts on nomination basis, as it is notified as a Public Work Organization under revised Rule 126 (2) of general financial rules (GFR). It undertakes the entire project from concept designing to commissioning. Investment Rationale The company procured new orders worth Rs.5200 crores in H1FY17, taking the current order book to Rs.71000 crores (including redevelopment projects) as of November 2016. It is expected to secure another order worth Rs.10000 crores by H2FY17. The current order book is 12.16x FY16 sales providing strong revenue visibility for ensuing years. The consolidated net sales and net profit increased by 17.24% and 7.09% on YoY basis to Rs.2530.74 crores and Rs.116.30 crores in H1FY17. NBCC major clients include various ministries like Ministry of Urban Development, Corporate Affairs, Information & Broadcasting, Home Affairs, External Affairs, Rural Development, Commerce & Industry, Defense, Finance etc. Besides NBCC has also signed MOUs with AIR India; NAWADCO; IITs, NITs CPWD etc. The company’s “Navratna” status conferred upon it by the Govt. of India on June 2014 allows it to partner with firms in the foreign markets and also empower it to invest up to Rs 1000 crores on a single project without seeking government’s approval. The company is key beneficiary of the government’s ambitious plans of developing 100 smart cities project worth Rs.50000 crores, Housing for all by 2022 Scheme, AMRUT, FDI in construction development sector, passing Real Estate Bill aimed at urban development. NBCC has recently entered into MoU with Rosinformexport LLC, an investment company of Rostec State Corporation, a 100% state owned company of Russia having expertise in ICT/digital products. NBCC & Rosinformexport shall collaborate to jointly participate in the Smart City projects in India. NBCC is likely to invest Rs.5000 crores to redevelop 10 railway stations. It will also construct commercial and residential spaces on the station land earmarked for development. A strong debt free balance sheet and huge opportunity in redevelopment space along with strong order book continue to play positive on NBCC. Benefit of low inflation, low interest rate and transparency post demonetization will give big boost to the construction sector as a whole. Hence we recommend BUY on NBCC with a price target of Rs.299 assuming a P/E of 30x FY18e EPS of 9.95 over a period of 12 months with an upside of 27%. Source: Company, AUM Research 166.20 186.20 206.20 226.20 246.20 266.20 286.20 NBCC (India) Ltd ^ All figures are on consolidated basis
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NBCC (India) Ltd. December 30th, 2016
{{{{
NBCC (India) Ltd.(NBCC)
INDUSTRY Construction
No. of Shares (Crs) 60.00 Face value (Rs) 2.00 Mkt. Cap (Rs. Crore) 14154.00
Company Background National Buildings Construction Corporation Ltd. (NBCC) is a 56 year old Navratna PSU company. The company is present in three main segments, i.e. (i) Project Management Consultancy (PMC), (ii) Real Estate Development (RE) & (iii) EPC Contracting. The PMC contributes ~85-90% of its annual turnover. It gets PMC contracts on nomination basis, as it is notified as a Public Work Organization under revised Rule 126 (2) of general financial rules (GFR). It undertakes the entire project from concept designing to commissioning.
Investment Rationale � The company procured new orders worth Rs.5200 crores in H1FY17,
taking the current order book to Rs.71000 crores (including redevelopment projects) as of November 2016. It is expected to secure another order worth Rs.10000 crores by H2FY17. The current order book is 12.16x FY16 sales providing strong revenue visibility for ensuing years. The consolidated net sales and net profit increased by 17.24% and 7.09% on YoY basis to Rs.2530.74 crores and Rs.116.30 crores in H1FY17.
� NBCC major clients include various ministries like Ministry of Urban Development, Corporate Affairs, Information & Broadcasting, Home Affairs, External Affairs, Rural Development, Commerce & Industry, Defense, Finance etc. Besides NBCC has also signed MOUs with AIR India; NAWADCO; IITs, NITs CPWD etc.
� The company’s “Navratna” status conferred upon it by the Govt. of India on June 2014 allows it to partner with firms in the foreign markets and also empower it to invest up to Rs 1000 crores on a single project without seeking government’s approval.
� The company is key beneficiary of the government’s ambitious plans of developing 100 smart cities project worth Rs.50000 crores, Housing for all by 2022 Scheme, AMRUT, FDI in construction development sector, passing Real Estate Bill aimed at urban development.
� NBCC has recently entered into MoU with Rosinformexport LLC, an investment company of Rostec State Corporation, a 100% state owned company of Russia having expertise in ICT/digital products. NBCC & Rosinformexport shall collaborate to jointly participate in the Smart City projects in India.
� NBCC is likely to invest Rs.5000 crores to redevelop 10 railway stations. It will also construct commercial and residential spaces on the station land earmarked for development.
� A strong debt free balance sheet and huge opportunity in redevelopment space along with strong order book continue to play positive on NBCC. Benefit of low inflation, low interest rate and transparency post demonetization will give big boost to the construction sector as a whole. Hence we recommend BUY on NBCC with a price target of Rs.299 assuming a P/E of 30x FY18e EPS of 9.95 over a period of 12 months with an upside of 27%.
Source: Company, AUM Research
166.20
186.20
206.20
226.20
246.20
266.20
286.20
NBCC (India) Ltd
^ All figures are on consolidated basis
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NBCC (India) Ltd. December 30th, 2016
About the Company National Buildings Construction Corporation Ltd. (NBCC) is a 56 year old Navratna PSU company. The company is present in
three main segments, i.e. (i) Project Management Consultancy (PMC), (ii) Real Estate Development (RE) & (iii) EPC
Contracting. The PMC contributes ~85-90% of its annual turnover. It gets PMC contracts on nomination basis, as it is notified
as a Public Work Organization under revised Rule 126 (2) of general financial rules (GFR). It undertakes the entire project
from concept designing to commissioning. NBCC is headquartered in New Delhi and has 10 regional / zonal offices across
India. The projects undertaken by the company are spread across 24 states and 1 union territory in India.
The Rule 126(2) of GFRs 2005 provides that the Ministry or Department may, at its discretion, assign repair works estimated
to costs above rupees thirty lakhs and original works of any value to any Public Works Organization, such as Central Public
Works Department (CPWD), State Public Works Divisions, other Central Government organizations authorized to carry out
civil or electrical works such as Military Engineering Services (MES), Border Roads Organization (BRO) etc., Public Sector
Undertakings set up by the Central or State Government to carry out civil or electrical works. Apart from the above said
organizations, any other Central/State Government organization/Public Sector undertaking to be assigned such work are
required to be notified by Ministry of Urban Development after evaluating their financial strength and technical competence.
PMC
The company provides management and consultancy for a range of civil construction projects including residential and
commercial complexes, re-development of old government colonies, education and medical institutions, infrastructure
projects roads, water supply systems, storm water systems and water storage solutions. Company’s clients are various
ministries, urban infrastructure development boards, CPSEs, IITs amongst others. In the existing orders in hand of Rs.71000
crores ~93% comprises of PMC orders and the margins in the segment ranges from ~7-10%. In the industry the order is
considered to be one of the indicators of the future performance as it represents significant portion of anticipated revenue.
In H1FY17, the PMC division revenues grew 23.59% YoY to Rs. 2310.12 crores
PMC business process
Source: Company AUM Research
NBCC sources PMC projects mostly through
nomination and prepares conceptual plans and
detailed project report by engaging the in-house
technical experts to work on preliminary estimates.
It then signs MoU with the client in which it
mentions the terms and fees of the contract. After
getting the final approval it engages itself in pre-
construction activities and appoints sub-contractors
by dividing the work in several packages. The
requisite pre-construction Governmental licences
and approvals for the project are obtained by the
contractor so appointed by NBCC. Upon completion
of project the client issues completion certificate.
The company often stipulates defect liability period
of 12 months from the date of completion of the
project and in some cases like Pradhan Mantri Gram
Sadak Yojana, the defect liability period is 5 years.
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NBCC (India) Ltd. December 30th, 2016
Real Estate Development NBCC real estate development segment focuses on principally two types of projects, namely, (i) residential projects, such as apartments and
townships and (ii) commercial projects, such as corporate office buildings and shopping malls. The Company has undertaken real estate
projects which are spread across 12 states in India. Land reserves of 170 acres are located in different parts of the country. NBCC signed an
MoU with NAWADCO in September 2014 to develop Waqf properties and identified several Waqf properties including one in Delhi, two in
Rajasthan, 6 in Madhya Pradesh and seven in Karnataka which would be developed as commercial and institutional projects. The company is
not aggressive in this segment after recording a slump of 65% in H1FY17 to Rs.62.71 crores. The company has fully constructed inventory of Rs.500-600 crores and it has started two real estate projects in Lucknow and Kochi in FY17. NBCC has successfully executed two real
estate projects which include projects like Vibgyor tower in Kolkata and Residency tower in Patna.
Source: Company AUM Research
Subsidiaries & Associates NBCC has set up Subsidiary Companies and Joint Venture Companies as follows:
NBCC Services Limited is wholly owned subsidiary company. The main objective is to undertake maintenance work
and to act as an execution and implementation Agency for CSR Projects and related activities on behalf of its own or for
any other Govt. Undertakings/Semi Govt. Undertakings/ Body Corporates/ Societies/Trusts/Private Institutions/NGOs
or any other concern. It has also been mandated to act as an execution and implementation agency for sustainability projects, heritage building restoration works etc.
NBCC Engineering & Consultancy Ltd. (NECL) renders consultancy to Govt. and Private Organizations.
NBCC GULF LLC: A Limited Liability Company (LLC) in the Sultanate of Oman where NBCC’s equity participation is 70% of the total holding carries out Building & Civil construction activities in Gulf Countries.
Real Estate Development & Construction Corporation of Rajasthan Limited (REDCCOR): A joint venture with
Government of Rajasthan undertakes various construction and re-developmental projects in the state of Rajasthan.
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NBCC (India) Ltd. December 30th, 2016
Investment Rationale
Robust Order Book in Diverse Sectors The company is comfortably positioned with a massive order book backlog of Rs.71000 crores which is 12.16x its FY16 sales, providing strong revenue visibility. The majority of orders wins were in PMC segment. The order book
comprises of ~96% from PMS & ~4% from EPC & Real Estate division. Of the order book, projects worth Rs.24694
crores obtained by the company under General Pool Residential Accommodation (GPRA) for developing colonies at
Sarojini Nagar, Nauroji nagar and Netaji Nagar which was approved in July 2016. Going forward the management has guided for an order inflows of ~ Rs.10000 crores in H2FY17. Despite the weak market NBCC was able to procure
orders.
Huge Re-development Opportunities NBCC has developed its expertise in re-development projects after successfully completing the New Moti Bagh project
in FY12. A major chunk of recent order inflows of Rs.71000 crores (~46% of recent order inflow) was for redevelopment projects of government colonies in New Delhi. Redevelopment projects are projects whereby old
buildings, complexes and colonies are redeveloped. Such projects are typically high value projects. Projects having a
high order value typically have a smaller percentage of overhead cost as a percentage of total cost and therefore
provide a higher profit margin. The pre-qualification and financial entry barriers for pursuing high value projects, if any, provides the company an edge over its competitors who bid for such projects. NBCC aims to focus on establishing
as a leading player in the large order size projects. The redevelopment projects that falls under PMC segment is
expected to grow ~25% CAGR for the next five years , which is a very conservative figure considering the order book
size.
The company is already redeveloping AIIMS, Pragati Maidan exhibition centre and currently working on East Kidwai
Nagar, New Delhi project of Rs 5000 crores expected to be completed by December 2019. In July, 2016, NBCC has been entrusted the work of redeveloping three colonies viz. Sarojini Nagar, Netaji Nagar, and Nauroji Nagar. These projects
provide sustainable growth potential to the company.
Source: Company AUM Research
96%
4%
Order Book Breakup
PMC EPC & Real Estate
Source: Company AUM Research
2.38
3.82 3.78 4.195.11
12.16
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2000.00
12000.00
22000.00
32000.00
42000.00
52000.00
62000.00
72000.00
82000.00
FY12 FY13 FY14 FY15 FY16 FY17
Order Book Order Book to Sales ratio (x)
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NBCC (India) Ltd. December 30th, 2016
Redevelopment Projects
Source: Company AUM Research
Takeover of HSCL, (Hindustan Steel Works Construction Ltd.) Hindustan Steelworks Ltd. is a company under the Ministry of Steel. Primarily it was constituted for steel projects, but in the last decade, they were primarily in EPC contract & 75 % business was coming from EPC, PMC business
comprised of 25% of the business. NBCC had acquired 51% of shareholding in the company after getting approval from
the Union Cabinet. Since both have similar kind of business activities, the company stands to benefit from the synergy
arising out of the Merger & Acquisition move. The company has order book of about Rs.8200 crores as per their last report and is doing an average Rs.1500 crores turnover over the last three years with an operating margin of 7%
which is about Rs.100 crore. The company was in loss due to interest burden. Once restructuring is done, NBCC will
benefit with the order book and additional turnover which will improve the topline once it comes to NBCC fold.
Embracing newer technology to usher world-class development The company has signed MoU with Hungary-based Gramound Engineering Ltd for adoption of non-tectonic system
that employs a unique concrete technology for faster construction of mass housing projects. This is facilitated by establishment of factory that produces module suitable for building housing unit of any category and shape. NBCC 's
participation in the Government's 'Housing for all by 2022' initiative using this modern technology will not only enable
to cater to a vital need but also significantly reduce construction time , help in maintaining superior quality and ensure a cost effective proposition.
Land Management Agency a new source of revenue The government had come out with guidelines on closure of sick and loss-making state-run enterprises and disposal of
their assets, including land. The land of such closed units will be first offered to central government, followed by another central public sector enterprise (CPSE), state departments and finally state government bodies, in that
particular order. The GoI has appointed NBCC as the land management agency to manage, maintain and protect the
land assets of sick CPSEs. Nearly 2.5 lakh acres are lying with loss making PSUs. NBCC has written to 74 sick PSUs
about their land banks. It has the option to monetize, redevelop land parcels in consultation with administrative ministry, state run firm.
PSUs like HMT, NTC, Hindustan Photo-films, ITI hold 100 acres of prime land in metros. NBCC has been mandated to
dispose realty assets of loss-making companies with 0.5% of value realized as fees.
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NBCC (India) Ltd. December 30th, 2016
Financials & Valuations
NBCC has achieved sales revenue of Rs. 5838.27 crore, PAT margin of 5.3% and order inflow of Rs.17516.53 crore in
FY16, which was above the basic target of Rs. 4200 crores as per the MoU signed with the ministry. By looking at
NBCC’s past track record and current position, we believe it will over achieve the expected MoU target in FY17E and
FY18E. Considering the current order book and its ongoing projects, we expect revenues to witness robust growth at
31.65% CAGR to 10118.15 crore in FY16-18E. Also, the company’s strategy to focus on high value projects in the PMC
division will further boost operating margins as they have lower percentage of overhead cost. Hence, these will lead to
an overall operating margin expansion by 90bps to 7.2% in FY18E.
8.10
32.69
18.86
45.81
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
0.00
2000.00
4000.00
6000.00
8000.00
10000.00
12000.00
FY15 FY16 FY17e FY18e
Revenue (in Rs Crs) Revenue Growth (%)
6.6
6.0
6.3
7.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.8
7.0
7.2
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0.00
2000.00
4000.00
6000.00
8000.00
10000.00
12000.00
FY15 FY16 FY17e FY18e
Sales (in Rs Crs) Operating Profit Margin (%)
Source: Company AUM Research
The average ROE and ROCE of NBCC during FY15-FY16 have
remained at the level of 22.0% and 35.00%, respectively, on
the back of a strong bottom-line. Going forward, we expect
RoE and RoCE to improve to 27% & 42% in FY18E with an
anticipated bottomline growth. The debt free balance sheet
of the company also helps the company to maintain such
strong ratios.
35.03 33.70 34.75
42.04
22.45 21.88 22.32
26.98
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
FY15 FY16 FY17e FY18e
ROCE (%) RONW (%)
Source: Company AUM Research
Source: Company AUM Research
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NBCC (India) Ltd. December 30th, 2016
The Government of India along with the State Governments has taken several initiatives to encourage the
development in the construction/real estate sector. The Smart City Mission, Housing for All by 2022
Scheme, AMRUT, government efforts to improve the country’s residential and transport infrastructures,
Foreign Direct Investment (FDI) in the construction development sector, passing of Real Estate Bill etc. are
some of the prime opportunities available in the years to come. NBCC has enormous scope for business
opportunities in the re-development of old government colonies in India.
A strong debt free balance sheet and huge opportunity in redevelopment space along with strong order
book continue to play positive on NBCC. Benefit of low inflation, low interest rate and transparency post
demonetization will give big boost to the construction sector as a whole. Hence we recommend BUY on
NBCC with a price target of Rs.299.00 assuming a P/E of 30x FY18e EPS of 9.95 over a period of 12 months.
Key Risks & Concerns
• Over dependence on government projects as it receives more than ~90% of its orders from government
entities.
• Raw material cost is the major cost component for the company, any rise in raw material prices would
impact the profitability of the company.
• The order book may not be an accurate or reliable indicator of future business of the company as the
execution may be delayed, modified, cancelled or not fully paid for by the clients that may impact future
business or earnings.
• Any downturn in the Indian and global financial markets could adversely affect the business of the
company.
• Most of the agreements with the clients for PMC projects require, obtaining all necessary statutory licenses
and approvals. Any inability to procure any or all such licences could expose NBCC to significant risk
including abandonment and/or delay of such project and an adverse effect on business, revenue and
financial results.
• The entry of non-sectoral companies in PMC sector will create intense competition and affects the order
book of the Company. Further actual results of the Company would also depend on future economic
development in the Country.
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NBCC (India) Ltd. December 30th, 2016
Consolidated Quarterly & Half Yearly Numbers (Figures in Rs. Crores)
Description Q2FY17 Q2FY16 YoY% H1FY17 H1FY16 YoY%
Net Sales 1257.47 1066.61 17.89 2530.74 2158.55 17.24
Total Expenditure 1182.32 1000.76 18.14 2409.73 2057.11 17.14
Tanya Kothary - Sr. Research Analyst 033 –30588405 [email protected]
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