Published on 22/06/2019 11:15:28 AM | Source: Reliance Securities Ltd

Option Strategy NBCC Ltd by Reliance Securities

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Real Estate Division Drives Performance

Missing our estimate, NBCC’s reported revenue stood at Rs23.8bn (+9% YoY and +44% QoQ) mainly due to marginal revenue growth from PMC (+3.6% YoY) and persistent delay in key projects. However, there has been a significant jump in real estate revenue to Rs2.24bn vs. nil in 4QFY18 and Rs740mn in 3QFY19, while EPC revenue significantly declined by 65% YoY and 14% QoQ to Rs607mn. However, EBITDA stood at Rs1.78bn (-1.5% YoY and +143% QoQ) surpassing our estimate of Rs1.32bn, mainly owing to stronger EBITDA margin of 7.5% led by higher-thanexpected revenue and margin from real estate division. Real Estate EBIT margin stood at 40.4%, while PMC margin stood at 5.8% during the quarter. Notably, EPC division reported EBIT loss of Rs58mn. Order book of Rs800bn continues to appear bulky (11x of FY19 revenue), which offers a robust revenue visibility. The Management expects to add projects worth Rs130-150bn and to award Rs150bn in the current fiscal. Persistent delay in key projects has been affecting its growth, despite 23% YoY revenue growth in FY19 and the Management expects 25-30% revenue growth in FY20. Progress on Jaypee Infra deal and Delhi redevelopment projects are the key monitorable in the near-to-medium-term. While we marginally tweak our earnings estimates for forward years to factor in projects delay and better margin, we do not see any reason to upgrade our target multiple. Hence, we maintain our HOLD recommendation of the stock with a revised SOTP-based Target Price of Rs64 (from Rs62 earlier).


Below-par Revenue on Delay in Key Projects

Led by persistent delay in key redevelopment projects, NBCC witnessed lower-than-expected 9% YoY growth in standalone revenue to Rs23.8bn, while Reported EBITDA de-grew by ~2% YoY to Rs1.79bn. EBITDA margin stood at 7.5% (vs. 8.3% and 4.4% in 4QFY18 and 3QFY19, respectively) surpassed our estimate, driven by higher revenue and margin from real estate segment. Net profit grew by 8% YoY to Rs1.53bn in 4QFY19, which grew by 15% YoY to Rs3.84bn in FY19. Going forward, NBCC has guided for 25-30% revenue growth and 5-5.5% margin in FY20.


Order Book Remains Unmatched

NBCC’s current order book (ex-taxes) stands at Rs800bn (11x of TTM revenue), which is unmatched and provides a robust growth visibility as well. However, orders worth Rs410bn are for re-development, out of which a mere Rs50bn of work is under execution. NBCC is expected to award projects worth ~Rs150bn and expects order inflow to the tune of Rs130-150bn in FY20.


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. Therefore, we continue to believe that NBCC should trade at premium to its peers. At CMP, the stock trades at 24.8x of FY20 and 19.9x of FY21 EPS, which appears to be reasonable. We do not envisage any re-rating of the stock due to slower redevelopment projects, ambiguity over Jaypee Infra deal and possibility of government pressure to acquire more sick companies in future. We maintain our HOLD recommendation on the stock with a revised SOTP-based Target Price of Rs64 (20x of EPS FY21E).


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