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 the company 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 the company which is reflective of the fact that its top-line grew @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.
We have 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. We recommend a BUY on NBCC trading at 8x one-year forward earnings with a one-year price target of Rs225.
Thanks and Regards
LKP Advisory
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