Small Cap : Buy NBCC Ltd For Target Rs. 45 - Geojit Financial
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Execution is picking up...
NBCC Ltd (NBCC) is a Navaratna Enterprise under Ministry of Urban development and their business verticals include, Project Management Consultancy (PMC), Engineering Procurement & Construction (EPC) and Real estate business .
* Q3FY21 revenue grew by 19% YoY led by pick up in execution in PMC segment (21% YoY) and improved labour availability.
* EBITDA margin improved by 181bps YoY due to fall in employee cost (-3% YoY) and other expenses (-22% YoY).
* Order book remains strong at Rs62,000cr, however, orders worth ~Rs18,500cr were in execution stage and NBCC targets to take total projects under execution to ~Rs27,000cr in FY21.
* NBCC got clearance for Nauroji & Netaji Nagar projects while Sarojini Nagar projects are awaiting forest clearances.
* We increase FY21E/22E revenue estimates by 15%/16% due to pick up in PMC execution and revival in real estate monetisation.
* We value NBCC‘s core business at a P/E of 20x on FY22E EPS & Rs5/share for land parcel held and revise our rating to Buy with a TP of Rs45.
Execution remains the key...
Q3FY21 standalone revenue increased by 19.2% YoY to Rs1,508cr (better than estimate) on account of pick up in PMC (21% YoY) execution and improving labour availability. Real estate revenue increased to Rs32cr (vs 16cr in Q3FY20) while EPC revenue declined by 34% YoY to Rs56cr. Pace of real estate monetisation remains the key catalyst for the coming year. The management expect execution to pick up from Q4FY21 onwards and has guided an ambitious revenue target of Rs 5500cr in FY21 (vs Rs6000cr) and Rs8,000cr in FY22E. Therefore, we increase FY21E/FY22E revenue estimate by 15%/16%, respectively.
Strong order book…
NBCC’s OB remains strong at Rs620bn which is ~14x TTM revenue. Out of which the company has already started construction of Rs18,500cr of projects. NBCC has further awarded projects of ~Rs9600cr and plans to award an additional Rs3,000cr projects in Q4FY21. The company is targeting to achieve total projects under execution to Rs27,000cr in FY21. NBCC awaiting forest clearances for Sarojini Nagar which is expected in the coming months. Future projects awarding remains key for FY22E execution which depends on project clearances.
EBITDA margin improved...
Improved margins in PMC business and higher contribution from high margin real estate business led to an increase of 181bps YoY in EBITDA margin to 2.8% in Q3FY21. As per management, EBITDA margin is expected to improve to 1.2% in FY21 owing to pick up in execution. The company reported a PAT of Rs104cr (198% YoY) compared to Rs35cr in Q3FY20.
Valuations
Strong order book and pick up in execution are providing growth visibility. We expect pace of monetisation of real estate in redevelopment projects would remain the key catalyst for top-line growth. We value NBCC’s core business at a P/E of 20x on FY23E EPS and book value of land parcel at Rs5/share to arrive at SOTP target price of Rs45.
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