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Robust Execution; Disappoints on Margins
NBCC reported a mixed performance in 2QFY19 with a better-than-expected growth in revenue booking and disappointing EBITDA margin. Beating our estimate, its reported revenue grew by 37% YoY to Rs15.4bn mainly led by 39% YoY increase in PMC revenue and 266% YoY rise in real estate revenue. PMC revenue accounted for 90% of its total revenue. A significant increase in other income (+207% YoY and +70% QoQ) resulted in 16% YoY growth in PAT to Rs859mn. NBCC stated that change in accounting rules to IndAS resulted in deferment of revenue booking especially for upfront fees under PMC contracts. Earlier, these incomes used to be reported in P&L, which are shown under liabilities as advances received. These incomes would be booked in P&L with normal revenue booking on milestone basis. Order book of Rs800bn (excluding taxes) continues to appear massive (13.5x FY18 sales), which offers robust visibility. Nevertheless, we cut our earnings estimates by 6% and 18% for FY19E and FY20E, respectively mainly to factor in lower margin. However, sharp correction over last five months on account of tree cutting issues in Delhi redevelopment projects is overdone and further price decline seems to be limited. We maintain our BUY recommendation on the stock with a revised Target Price of Rs90 (from Rs103 earlier).
Strong Execution Drives Revenue
Led by improved traction in projects execution, NBCC witnessed 37% YoY growth in revenue to Rs15.4bn (ahead of our estimates), while reported EBITDA declined by sharp ~30% YoY and ~6% QoQ to Rs591mn. Further, EBITDA margin declined to 3.7% vs.7.4% and 3.9% in 2QFY18 and 1QFY19, respectively. Further, higher standalone revenue than consolidated revenue is primarily attributable to arrival of 2QFY19 consolidated revenue by subtracting 1QFY19 consolidated revenue (including Rs1.98bn from HSCL) from 1HFY19 consolidated revenue (with no HSCL revenue). We expect HSCL revenue to be re-booked from current quarter onwards.
Order Book Remains Unmatched
NBCC’s current order book (ex-taxes) stands at Rs800bn (13.5x FY18 revenue), which is unmatched by any company and provides robust growth visibility, going ahead. It has awarded projects worth Rs70bn in FY19 YTD and is likely to award projects worth~Rs40-50bn till FY19E-end. Further, NBCC is engaged in negotiation or at advance stage of securing more projects in the coming months i.e. Railway redevelopment and Dharavi redevelopment projects.
Outlook & Valuation
We continue to view NBCC as a robust growth story owing to its PWO status and niche presence in redevelopment of government’s old colonies. Further, a debt-free balance-sheet and superior return ratios augur well for the Company. However, we trim down our earnings estimates by 6%/18% for FY19E/FY20E to factor in soft margin. Nevertheless, we maintain our BUY recommendation on the stock with a revised Target Price of Rs90 (30x EPS FY20E).
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