NBCC - Building Strong Foundation; Result Update Q2FY15:: Edelweiss

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National Building Construction Company Ltd. (NBCC) has reported below-expected Q2FY15 results. Standalone net sales for the quarter grew by 7% YoY as against our expectation of 17%, as Real Estate segment witnessed a sharp 54% YoY decline. The PMC business topline grew by 24% YoY. Standalone EBITDA margin contracted by 110bps YoY to 5.5% due to change in business mix and higher other expenses. The company added PMB contracts worth INR 2600 cr during the quarter. The company has a strong order book of INR 17000 cr, which is executable over the next 3-4 years. Further, the company expects to add INR 21000-22000 cr of new orders in the next 6-12 months, which would largely be driven by redevelopment orders of INR 18000 cr. Based on the strong order book and robust order pipeline, the company expects to achieve INR 4700 cr to INR 4800 cr sales in FY15 and INR 6000 cr topline in FY16. We believe that being the only government company in the real estate business, NBCC is well placed to gain from increased investments in redevelopment of government colonies, development of smart cities and other government housing projects.

Real estate drags performance; Expects traction in H2FY15

The company’s standalone net sales for Q2FY15 at INR 928 cr grew by 7% YoY, led by a sharp decline in the Real Estate business while the PMC business remained on track. Sales for the quarter were driven by 24% YoY growth in the PMC business whereas the Real Estate business declined by 54% YoY on last year’s low base. The company expects traction in revenue bookings going ahead, as execution of the PMC order book improves in the next two quarters. EBITDA margin in Q2FY15 contracted by 110bps YoY due to change in business mix and higher other expenses (on account of change in accounting treatment of share of interest paid to clients on advances). 

Strong order book of INR 18600 cr with robust pipeline

Order inflows during the quarter remained strong at INR 2600 cr of new orders added in the PMC segment. These orders came from customers like IIT, NIT, PMGSY, Mahanadi Coal Field, Border Road Organization etc. Further, the company expects to add INR 21000-22000 cr of new orders in the next 6-12 months, which would largely be driven by redevelopment orders to the extent of INR 18000 cr. It expects approval for three more redevelopment projects by January 2015 at Netaji Nagar, Kasturba Nagar and Tyagraj Nagar in Delhi with a total estimated value of INR 15000 cr. Hence, there is a strong visibility for order inflows going forward. 

Guides for INR 4700-4800 cr sales in FY15; Confident of pickup in execution

The NBCC management expects to clock sales of INR 4700-4800 cr in FY15 and expects the same to be at INR 6000 cr by FY16. This would be achieved by execution of strong order backlog and robust order pipeline. Further, it is targeting to improve execution rate in FY16, especially in Kidwai Nagar redevelopment project, as all hurdles related to execution would be resolved in the current year. Besides, the company is adding employee strength to meet future opportunities in the PMC space.

Real estate business sees slowdown

NBCC presently has land bank of 156 acres with INR 1030 cr book value and revenue potential of ~INR 4500 cr. The company is presently going slow in terms of new launches in NCR, considering the overall slowdown in the market. It has launch pipeline in Kolkata, Ghaziabad and Bhubaneswar with approvals in place. Further, it would be launching projects in Kochi, Faridabad and Alwar at a suitable time.

LINK

https://www.edelweiss.in/research/NBCC--Building-Strong-Foundation;-Result-Update-Q2FY15/10005195.html