NBCC - Value Pick : Anand Rathi

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NBCC                                                     Closing 100                                                             Target 160

“NBCC has a negative EV as its market cap is less than the cash on books of Rs. 13500mn, which shows that you are getting business almost free. With no debt on books and financial strength the company is an attractive play in the segment.

Investment Rationale

~   Operations in diverse sectors, with a strong order-book

~   Financial strength

~   Significant track-record with steady clientele

~   Consistent dividend-payer

~ Focus on high-value PMC and civil infrastructure projects for the power sector to benefit from economies of scale

~   Expansion of PMC business overseas

The Business

A public sector company engaged in project management consultancy services for civil construction projects, civil infrastructure for the power sector and real estate development, The National Buildings Construction Corp. is headquartered in New Delhi and has 10 regional / zonal offices across India. Projects undertaken are spread across 23 states and one union territory. In addition, the corporation has undertaken projects overseas.

1) Project management consultancy includes residential and commercial complexes, re-development of buildings and colonies, hospitals, educational institutions, infrastructure works for security personnel, border fencing as well as infrastructure projects such as roads, water-supply systems, storm-water systems and water-storage solutions. Some clients in this segment are or have been: the ESIC, the Ministry of Defence, the Ministry of Home Affairs (including security forces such as the CRPF, CISF, NSG, BSF), the Ministry of External Affairs, the MoUD, the Ministry of Commerce and Industry, the Ministry of Corporate Affairs, the Ministry of Finance, the Haryana Urban Infrastructure Development Board, IIT Roorkee, IIT Kharagpur, IIT Patna and SVNIT, among others.

2) Civil infrastructure for the power sector includes engineering and construction services for power projects, including design and execution of civil and structural works for power projects, and cooling towers and chimneys. Some clients in this segment are NTPC, BHEL, APGENCO, the Uttar Pradesh Rajya Vidyut Utpadan Nigam, MAHAGENCO and the Karnataka Power Corp.

3) Real-estate development focuses on two types of projects: residential, such as apartments and townships and commercial such as corporate office buildings and shopping malls. On January 31, 2012, land reserves (in Delhi, Uttar Pradesh, Patna, Gurgaon, Kolkata, Kochi, Alwar and Lucknow) were approximately 125 acres.

~ Valuation

A PSU construction company with no debt and good cash resources on its books becomes very attractive in this market scenario. A good execution track record and a diverse range of projects seem to be the key to its success. With more government spending in infrastructure and with a sound order book, we have a rosy outlook for the company.

It is also a good proxy for dividend play.

At CMP the stock trades at 7.9x and 1.48x its FY12E earnings P/BV respectively. It peers trade around 15-16x, which shows that it is available at a discount mainly on its positives reflecting from its financial strength (zero debt & negative EV) and strong order book.

NBCC has a negative EV as its market cap is less than the cash on books of Rs. 13500mn, which shows that you are getting business almost free. With no debt on books the company is an attractive play in the segment. Going forward we see a price target of Rs. 160 for next 2 years.

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