Below Par Performance
NBCC has reported a weak performance on all fronts in 2QFY20. While standalone revenue declined by 29% YoY and 13% QoQ to Rs11bn (vs. our estimate of Rs13.8bn), EBITDA loss came at Rs166mn as against EBITDA of Rs591 and Rs19mn in 2QFY19 and 1QFY20, respectively. Real Estate division once again was the main drag, which reported EBIT loss during the quarter. However, EBIT margin of PMC division improved by 50bps QoQ to 4.6%. Notably, a significant 73% increase in other income to Rs1.12bn due to dividend from new subsidiaries aided the Company to report Rs930mn pre-tax profit (-24% YoY and +157% QoQ). However, higher tax due to re-measurement its deferred tax assets/liabilities for migration to new tax regime, led to Rs289mn net loss. During 1HFY20, NBCC generated negative OCF to the tune of Rs1.4bn vs. negative OCFs of Rs2.6bn and positive of Rs1.2bn in 1HFY19 and FY19, respectively. Notably, it added orders worth Rs102bn (including Rs83bn of Amrapali Projects) in FY20 YTD, with which its standalone order book now stands at Rs720bn with Rs320bn under PMC (5.1x of TTM revenue). Surprisingly, NBCC guided for revenue growth of 12-15% in FY20E implying >50% growth in 2HFY20E. Hereon, final outcome of Nauroji Nagar project (worth Rs220) scheduled on 19th Nov’19, and improved execution in ongoing projects would be the near-term catalysts for the stock. Pruning our earnings estimate sharply by 26% for FY20E and by 1% for FY21E mainly to factor in soft execution and new ETR, we maintain our BUY recommendation on the stock with an unrevised Target Price of Rs45.
Delay in Key Projects Mars Performance
A persistent delay in key re-development projects impacted its performance with revenue declining by 29% YoY to Rs11bn and leading to Rs166mn EBITDA loss for the quarter. Higher overheads from slow-moving projects and continued losses from real estate division resulted in higher operating cost, which led to EBITDA loss. Looking ahead, we expect NBCC’s performance to improve on the backdrop of pick-up in other PMC projects and likely commencement of Delhi re-development projects. Whilst revenue is expected to be laggard, we expect >30% growth in FY21E.
Order Book Remains Robust
Standalone order book stands at Rs720bn (11.4x of TTM revenue) and order book (ex-self sustainable projects) stands at Rs320bn (5.1x of TTM revenue), while consolidated order book stands at Rs800bn. It further cited that >Rs250bn of PMC projects have already been awarded so far. Order inflow stood at Rs102bn in FY20 YTD including Amrapali Projects (Rs83bn), where NBCC is entitled to get 8% marketing charges.
Outlook & Valuation
We note 2QFY20 marked the second successive quarterly wash out performance led by slowdown in governments’ expenditure, pending clearances for the key projects and general liquidity crunch. Final outcome of Nauroji Nagar project (worth Rs220) scheduled on 19th Nov’19 and improved execution in ongoing projects will be the near-term catalysts for the stock. We maintain our BUY recommendation on the stock with an unrevised Target Price of Rs45.
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