Initiating Coverage - National Buildings Construction Corporation: Angel Broking

New Opportunities to unearth growth potential

National Building Construction Corporation (NBCC) a 'Navratna' company, is one of the largest Public Sector Enterprises (PSEs) in the construction space. Its Project Management Contract (PMC) division (~85% of FY2015 revenues) is a cash cow business, which gets large orders on nomination basis and enjoys a negative working capital cycle.

Huge opportunities in the pipeline...

NBCC reported an order book of Rs. 30,000cr as of 2QFY2016-end, reflecting 5.8x last twelve month (LTM) revenues. Of the Rs. 30,000cr order book, the PMC segment accounted for a major 92% (includes ~Rs. 3,500cr Kidwainagar redevelopment project), whereas the remaining is from Real Estate (5%) and EPC (3%) segments. Considering the emerging bid pipeline for re-development works from Delhi and other State governments, and with 'Smart City' projects to take-off shortly, we expect NBCC's order book to grow 2-fold during 1HFY2016-18E to Rs. 59,440cr.

Revenues and PAT to report 26.7% & 32.7% CAGR during FY2015-18E

We expect NBCC to report a 26.7% revenue CAGR during FY2015-18E (to Rs. 9,506cr), mainly driven by an estimated 29.3% revenue CAGR from the PMC segment, where re-development projects would contribute the maximum. We expect NBCC to report 41.5% EBITDA CAGR during the same period, led by increased contribution from the PMC segment, which is likely to experience margin expansion (PMC segment's EBIT margin to expand from 7.3% in FY2015 to 8.9% in FY2018E). Owing to lower other income growth assumption, we expect NBCC to report a 32.7% PAT CAGR during FY2015-18E to Rs. 653cr.

Long term story; recommend BUY...

We have a strong positive view on NBCC, given its growth prospects as reflected by its strong order book of Rs. 30,000cr (5.8x LTM revenues). Also, emerging opportunities in the re-development space, government's initiative of developing 'Smart Cities', and the company's cash rich status, should aid its growth. Given the bid pipeline and huge order book, we are convinced about the strong earnings growth potential of the company for the next few years. Accordingly, we have conservatively assigned 20.0x P/E multiple to our FY2018E EPS of Rs. 54/share; we arrive at a price target of Rs. 1,089. Given the 22% upside potential in the stock from the current level, we initiate coverage on the stock with a Buy recommendation.

Shares of NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD. was last trading in BSE at Rs.904.55 as compared to the previous close of Rs. 906.55. The total number of shares traded during the day was 28283 in over 1589 trades.

The stock hit an intraday high of Rs. 918.65 and intraday low of 901.3. The net turnover during the day was Rs. 25752270.

Source : Equity Bulls

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