Decline in NBCC share price a reflection of slow pace of order inflow

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NBCC (India) has been on a downtrend recently, with the share hitting Rs 26.70 in 2022 and currently trading at Rs 33.30. The scrip has fallen around 20 percent in the past three months, and is down 14 percent in the past one year.

It has formed a potential bottom between Rs 31 and 32 levels and if it manages to stay above this zone, it can inch higher with the first resistance at Rs 34.50 and the second at Rs 36.50, says Milan Vaishnav, founder and technical analyst, Gemstone Equity Research and ChatWizard FZE.

The state-owned company’s stock gained 3 percent on February 27 following the announcement that NBCC has bagged a project worth Rs 350 crore. It was named project management consultant for the complete planning, design, execution/construction of buildings and its services and other maintenance and upgradation works of existing buildings etc. under conventional/EPC contract mode as per scope of work for various buildings at Motilal Nehru National Institute of Technology, Allahabad.

The fact that this was the first order win in 2023 has created some nervousness among investors regarding the slow pace of order inflows. This has probably also been factored in the share price as is visible from the negative returns lately.

The company secured total business of Rs 194.17 crore in January against Rs 309.10 crore in December.

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The New Delhi-based company was established in 1960 as the government’s construction arm to execute civil engineering projects for state governments, various central government ministries, and public and private sectors.

NBCC operates in three areas: project management consultancy, engineering procurement and construction, and real estate development.

“Currently, we have a sell rating on the stock due to the short- to medium-term worries surrounding the slow pace of project awarding, sluggish real estate monetisation and a weaker margin profile,” said Antu Thomas, senior research analyst at Geojit Financial Services.

But he was quick to point out the order book remains strong at Rs 45,000 crore, which is 7.1 times its trailing twelve month revenue, of which the company has only awarded Rs 16,500 crore of projects to contractors (35 percent). As a result, the company has reduced its FY23 revenue guidance to Rs 5,500 crore from Rs 8,000 crore earlier.

NBCC has secured orders of Rs 2,000 crore till Q3FY23, which is a reason for underperformance. “A reversal in price trend will be solely based on pick-up in awarding of orders and monetisation of real estate projects, which appears less likely at the current juncture,” Thomas warned.

The company had said in its latest earnings conference call that its total order book is around Rs 45,000 crore and half of it is PMC projects and the other half is redevelopment projects. On a consolidated basis, the total order book of NBCC is around Rs 54,000 crore.

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However, PK Gupta, chairman and managing director of NBCC, told ETNow that one has to look at the order inflow on a yearly basis as it could be lumpy in nature. Gupta said the company has already received orders for Rs 2,400 crore and it is in talks for some major orders and would likely secure those very shortly.

He added, “In Amrapali project there is an FAR which is unconstructed so we want to construct that FAR and sell. We are in discussion with the authorities regarding that. In case we are able to get this order, this will be the range of Rs 7,000 to Rs 8,000 crore and it will be a major order.”

FAR or floor area ratio is a building’s total area divided by the size of the plot.

“And in addition to that orders worth around Rs 8,000 crore are in various stages of discussion, out of which we are likely to get Rs 3,000 crore orders in the current financial year and rest we are expecting in the next financial year.”

Other major works in pipeline include new industrial estates in Jammu & Kashmir, which is around Rs 550 crore, a medical college for the government of Puducherry for around Rs 450 crore, Institute of Chemical Technology, Indian Oil, Odisha campus, Bhubaneswar, for Rs 300 crore, DMF (District Mineral Foundation) work at Jajpur in Odisha for Rs 300 crore, and a government medical college at Mahasamund, Chhattisgarh, for 230 crore.

Gupta said, “We are likely to get these orders in the current financial year itself.”

And for next year, he said NBCC is targeting some major redevelopment works, including one for the armed forces at New Delhi, another for the Indian Agricultural Research Institute for Rs 1,000 crore, and the NIT Sikkim campus for Rs 700 crore.

Even as the company’s management seems to be bullish about the order inflow in the coming months, the enthusiasm is yet to be reflected in the share price.

In the December quarter, net sales came in at Rs 1,586.68 crore in December 2022, up 5 percent from Rs 1,508.65 crore a year earlier. Net profit stood at Rs 48.52 crore in December 2022, down 30 percent from Rs 69.35 crore during the corresponding period in the previous year.