Why NBCC Share Price is Rising

How many real estate and construction stocks could you think of that have carried on their business without zero debt on their books?

The biggest drag on real estate players is high debt.

Sure, poor accounting and lack of corporate governance has created some boom-to-bust stories in this sector but ultimately, debt could be a serious drag for top real estate companies.

With no external debt on books, a real estate company incurs lesser financial charges.

One real estate company that we could think of that has carried on its business successfully without taking on any debt is NBCC (India).

To put things into context, NBCC has not taken any debt on its books since 2008, with its debt-to-equity ratio being nil for the past 15 years.

In recent months, shares of the company have seen a sharp spike and currently trading near multi-year highs.

In 2023 so far, shares of NBCC are up 86% while in the past three month, shares have gained around 45%.

Here's why...

Big Order Wins

The recent rally comes after the civil construction PSU won decent orders in the past three months.

In the month of September, NBCC received an order related to consultancy & project management services order from Steel Authority of India (SAIL) for upcoming infrastructural-related projects of Bokaro Steel Plant, township, mines & collieries. This order was worth Rs 1.8 billion (bn).

In the same month, it inked an MoU with Ministry of Steel, Rashtriya Ispat Nigam (RINL) and National Land Monetisation Corp (NLMC) for monetisation of the non-core assets of RINL at Vishakhapatnam.

In October, it received an order worth Rs 800 million (m) from the Visakhapatnam Port Authority for the renovation and refurbishment of office buildings located at Visakhapatnam Port.

Another order worth Rs 251.9 m came from Ali Yavar Jung National Institute of Speech and Hearing Disabilities (Divyangjan), Mumbai, for the construction of a permanent building of the newly approved composite regional centre at Madhya Pradesh.

Just last week, the ICAI awarded the work relating to planning, designing, and execution of its buildings & renovation at various locations in India to NBCC. NBCC will complete this project at a PMC fee at 6.5% on actual project cost.

There are several other small orders that the company has won in 2023. For example, NBCC acts as an implementing agency for several government schemes such as Jawaharlal Nehru National Urban Renewal Mission and Pradhan Mantri Gram Sadak Yojana.

The company successfully completed redevelopment projects in Delhi recently and is now looking for more such projects as they fetch better margins. NBCC's overall position and strong order book provides healthy revenue visibility.

What Next?

One more reason why shares of the company have gained in recent months is because NBCC saw good sales of spoiled project inventories in the last six months.

In the real estate segment, NBCC successfully resolved the Amrapali home buyers' issue.

In the next two quarters, NBCC's management has guided for a turnover of around Rs 70 bn which will take the total around Rs 111 bn. It has ambitious plans to take this up to Rs 250 bn in the next five years with a profit rate of Rs 10-12 bn.

For instance, the company is planning to expand its offering in tier 2 cities. It will also look at expanding into overseas markets, particularly in African countries, Maldives, and Mauritius. By 2025, NBCC could deliver homes to 20,000 buyers.

If the company does manage to achieve the guidance laid by its management, it will be significantly higher than the growth rate seen in the past five years.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	99,430	80,871	69,534	76,906	87,544
Growth (%)	18%	-19%	-14%	11%	14%
Operating Profit	7,948	5,516	5,189	5,713	7,371
OPM (%)	8%	7%	7%	7%	8%
Net Profit	3,752	782	2,257	2,243	2,667
Net Margin (%)	4%	1%	3%	3%	3%
ROE (%)	21.9	6.8	15.5	14.0	15.0
ROCE (%)	44.2	36.9	33.2	29.0	30.3
Dividend (Rs)	0.7	0.1	0.5	0.5	0.5
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

Apart from real estate, NBCC plans to diversify offering in sectors such as roads, highways, overseas metro stations, solar, irrigation projects, and water supply.

NBCC truly stand out with an impressive cash position that dwarfs many of its peers. Most of its cash is earmarked for specific projects and cannot be used for other purposes. The company's business model entails execution of PMC (project management consultancy) projects against customer advances.

Despite being in the highly working capital-intensive construction space, the working capital cycle of the company is moderate.

NBCC transfer most of the risks with respect to execution, cost pass-through, etc. to sub-contractors through back-to-back arrangements and bank guarantees. This also leads to sizeable liquid surplus, generating sizeable non-operating cash flow.

Going forward too, NBCC does not plan to take on any debt.

How NBCC Share Price has Performed Recently

In the past one month, NBCC share price has gained over 15%. While in the past three months, the stock is up around 45%.

In 2023 so far, shares of the company have gained over 86%.

NBCC has a 52-week high of Rs 78 touched on 1 December 2023 and a 52-week low of Rs 31 touched on 28 March 2023.

Here's a table comparing NBCC with its peers.

Comparative Analysis

Company	NBCC	Prestige Estates	DLF	Macrotech
ROE (%)	14.9	11.2	3.0	4.1
ROCE (%)	30.3	13.2	4.7	4.2
Latest EPS (Rs)	1.9	42.8	9.1	15.9
TTM PE (x)	41.2	23.5	69.2	55.4
TTM Price to book (x)	6.9	3.6	4.1	6.8
Dividend yield (%)	0.7	0.2	0.6	0.2
Industry PE	104.7
Industry PB	3.8

Data Source: Ace Equity

About NBCC (India)

NBCC is a government of India Navratna Enterprise under the Ministry of Housing and Urban Affairs.

It operates in three major segments - project management consultancy, engineering procurement & construction, and real state.

To know more, check out NBCC's latest factsheet and quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...