23 February 2015

National Building Construction Company Ltd - Strong Visibilty; Result Update Q3FY15 :: Edelweiss

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National Building Construction Company Ltd. (NBCC) has reported EBITDA at 4.3% vs our estimate of 5.6%. However, the management has guided that the margins will recover in Q4FY15. Net sales for the quarter grew by 11% YoY as against our expectation of 13%, as Real Estate segment witnessed a sharp 57% YoY decline. The PMC business topline grew by 19% YoY. EBITDA margin contracted by 130bps YoY to 4.3% due to change in business mix and higher other expenses. The company added contracts worth INR 2300 cr during the quarter. The company has a strong order book of INR 18000 cr, which is executable over the next 3-4 years. Based on the strong order book and robust order pipeline, the company expects to achieve INR 5000 cr sales in FY15. 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.
Sales in line; Margins disappoint
The company’s consolidated net sales for Q3FY15 at INR 1124 cr grew by 11% YoY, led by a sharp 57% YoY decline in the Real Estate business while the PMC business grew by 19% YoY.  The company expects traction in revenue bookings going ahead. EBITDA margin in Q3FY15 contracted by 130bps YoY due to change in business mix and higher other expenses. However, the management has guided that  the EBITDA margins will be better for Q4FY15. Buoyed by strong cash flows, the management has indicated that it might look at revising upwards its dividend policy. Some of the cash will also be used to buy real estate assets.
Healthy order book of INR 18000 cr; Strong order visibility
Order inflows during the quarter remained strong at INR 2300 cr of new orders added. The company expects to add huge orders in H1FY16, which would largely be driven by redevelopment orders in Delhi such as Tyagraj Colony development. It expects approval for three more redevelopment projects by H1FY15 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. The management is optimistic that the land development PMC projects from sick PSUs will start coming in post the Union budget.
Guides for INR 5000 cr sales in FY15; Confident of pickup in execution in Q4FY15
The NBCC management expects to clock sales of INR 5000 cr in FY15 and reach INR 10000 cr within 4 years. This would be achieved by execution of strong order backlog and robust order pipeline. Further, it is targeting to improve execution rate in Q4FY15, which is seasonally much stronger than other quarters. Besides, the company is also hopeful of recovery in Real Estate markets and capitalizing on its sizeable land holdings in different parts of the country.
No negative effect of change in State Government in Delhi
NBCC management has indicated that the change of state government in Delhi (Aam Aadmi Party coming to power) will have no negative effects on its operations as most of its bulk orders are from DDA, which comes under the Central government and not the state government. NBCC as on date has only one order for a 200 bed hospital from the Govt. of Delhi. Going forward also, the management has indicated that since almost 90% of the potential land bank in Delhi is with the Centre government it will not face any issues to bag and execute projects.

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https://www.edelweiss.in/research/National-Building-Construction-Company-Ltd--Strong-Visibilty;-Result-Update-Q3FY15/10005617.html

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