Up until February, the narrative was that a fall in the share price of NBCC was a reflection of its slowing order inflow. This seems to have changed lately. NBCC has bagged nine orders in the past two months, indicating an improvement in the order win momentum, according to market participants.
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 the public and private sectors. NBCC operates in three areas: project management consultancy, engineering procurement and construction, and real estate development.
Technical view
Year-to-date (YTD), the company’s stock is still down about one percent. In the past three months and one-year timeframes too, the stock’s performance has been drab. However, it has begun to recover in the past two months and rallied close to 20 percent.
It closed two percent higher at Rs 38.78 on the BSE on April 25. The stock’s 52-week high is at Rs 43.80.
After a sharp correction last month, the stock found support near Rs 30 and bounced back sharply. Post reversal, it rallied nearly 30 percent, said Amol Athawale, Technical Analyst (DVP), Kotak Securities.
He added, “Technically, the short-term structure of the chart is still on the bullish side, but due to temporary overbought conditions, currently the scrip is witnessing range-bound activity. Perhaps traders are waiting for a breakout on either side.”
For the bulls, Rs 40 would be the important breakout level to watch for, and if the stock manages to trade above the same, one can expect a quick uptrend rally towards Rs 41-42. On the flip side, trading below Rs 37.5 may add to the weakness, and the stock may go down to Rs 36.5-36, Athawale added.
From a valuation standpoint, “The stock is trading at an FY25 EV/EBITDA of 5.3 times, which is lower than its long-term average EV/EBITDA of 7 times,” said Vinit Bolinjkar, Head of Research, Ventura Securities.
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Key drivers of stock recovery
What has happened is that since February 2023, prices of fuel and other building materials have softened quite a lot, and a pause in interest rate hikes has also helped, said Anmol Das, Head of Research, Teji Mandi. Further, the property market is seeing robust demand, and housing developers are able to sell the entire inventory of new projects. This has made the markets confident about the entire infrastructure story, he added.
Explaining the rally, Das said that last month’s surge was due to the confirmation of several order wins. Since February, the company has reported order wins of approximately Rs 3,300 crore till now, bolstering the market’s faith in the management guidance regarding order wins, he explained.
Based on the announcements made up to March 28, 2023, NBCC’s order additions in Q4 totalled around Rs 2,570 crore, about 133.6 percent higher than the order inflow of Rs 1,100 crore in Q4 FY22.
In April 2023, the company announced one more order worth about Rs 450 crore. With these, analysts believe the company is likely to be sitting on a very large order backlog pending execution. The orders added in Q4 include approximately Rs 210 crore secured by its subsidiary.
Order inflows have increased both in volume as well as value as the new financial year’s enhanced capex budgets have also kicked in, be it government-backed projects or private sector capex.
Bolinjkar believes the pace of order wins may sustain in the coming years due to the strong order pipeline of central and state governments, and public sector undertakings (PSU). He also thinks that the market is waiting for the order execution to happen in the coming quarters, which will enhance revenue growth and profitability.
The recent orders won by NBCC is certainly a positive development for the company, but the lacklustre share price movement is seen as an indication that investors are still concerned about the company's overall performance.
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Concerns persist
Even though the NBCC is a Navratna enterprise, the company’s order inflow and execution was slow, which significantly impacted its revenue growth and profitability, a point that Bolinjkar highlighted. The company gets orders from the PWD, the central and state governments, and PSUs for real estate and city infrastructure projects.
Karthick Jonagadla, smallcase manager and Founder of Quantace Research, also expressed concerns about the company’s execution of projects.
“While order intake may not be a major concern due to NBCC's solid six-seven years of order book-to-bill visibility, the slow-moving nature of government-funded projects, which make up 40 percent of its order book, is still a cause for concern among investors, as slow-moving projects lead to delays and uncertainty.”
Thus, even as the recent order wins augur well for the company, NBCC will need to address investor concerns about the pace of execution of government-funded projects in order to build momentum and drive share price growth, he added.
The construction company had said in an investor presentation in March that full-time functional directors have been appointed, which will boost execution and business development. Additionally, NBCC expects award of works or tendering to be faster in the next few months, as all statutory approvals are in place.
Besides the worry on the execution front, Jonagadla cautioned that the delay in the asset monetisation plan, which has been in the works for the past two-three years, is another major concern for investors who are eager to see NBCC unlock the value of its vast land bank and redevelopment projects.
The company has made progress in selling some redevelopment projects like the World Trade Center in Delhi’s Nauroji Nagar, and it has sold 1,650 houses in the Amrapali project in Noida. The project is not expected to be completed until the end of 2024. The residual value of the Amrapali project in 2024 is estimated to be Rs 4,000 crore, with around Rs 2,700 to Rs 2,800 crore expected to be realised next year.
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