Buy NBCC; target of Rs 224: Microsec
Microsec is bullish on National Building Construction Corporation (NBCC) and has recommended buy rating on the stock with a target price of Rs 224 in its December 19, 2012 research report.
December 20, 2012 / 12:44 IST
Microsec is bullish on National Building Construction Corporation (NBCC) and has recommended buy rating on the stock with a target price of Rs 224 in its December 19, 2012 research report.
"NBCC, a public sector company, primarily provides project management consultancy services for civil construction to various state and central government ministries and departments. With an order book of INR 150 bn, 4.4x FY12 revenues providing revenue visibility over the next couple of years coupled with company’s debt-free balance sheet with a cash surplus of INR 13.25 bn provides an attractive investment opportunity. A key trigger is revenue booking of real estate projects in Okhla and Gurgaon. Other positive factors include net cash per share of INR35 and negative working capital. The company’s uniqueness in project management services to government projects, Scalable model, sustainable free cash flows, healthy return ratios and reasonable valuations provide room for further upside.NBCC has a unique business model & provides project management & consultancy (PMC) services (Which constitutes 91% of revenues & 76% of PBT) across civil construction segments ranging from residential complex to institutional buildings, hospitals etc. for central & state government agencies. NBCC also has a Real Estate Development segment (6% of revenues & 18% of PBT).NBCC’s strong relationship with its client & bargaining power with its sub-contractors has been the drivers of its robust cash generating business model. Also, company’s debt free status and negative working capital cycle is a clear evidence of its superior business fundamentals.Order-backlog at 4.4x FY12 revenues provides strong visibility-With an order backlog of INR 150bn or 4.4x FY12 revenues we see strong growth visibility for the company. Further NBCC bagged a massive INR45 bn worth PMC contract for the redevelopment work of Kidwai nagar (E) in Delhi which will pan across 86 acres entailing a total development of 12mn square feet to be executed over a period of 5 years. We believe the order will provide strong growth traction to NBCC beyond FY13e. In FY13 NBCC is likely to complete 2 real estate projects with saleable area of 2.4lac sq ft mainly comprising of a commercial complex in Okhla, Delhi. Debt free balance sheet with surplus cash, High return ratio-NBCC is a debt-free company with cash surplus of INR1325 crore. The significant cash surplus has been on account of better (negative) working capital management. The negative working capital has been on account of advances received from customers and retention margin from the subcontractor. It reported RoE and RoCE of 26% and 31% in FY12, respectively, backed by strong operating performance and asset light model.NBCC has a unique business model & provides project management & consultancy (PMC) services (Which constitutes 91% of revenues & 76% of PBT) across civil construction segments ranging from residential complex to institutional buildings, hospitals etc. for central & state government agencies. NBCC also has a Real Estate Development segment (6% of revenues & 18% of PBT).NBCC’s strong relationship with its client & bargaining power with its sub-contractors has been the drivers of its robust cash generating business model. Also, company’s debt free status and negative working capital cycle is a clear evidence of its superior business fundamentals.Order-backlog at 4.4x FY12 revenues provides strong visibility-With an order backlog of INR 150bn or 4.4x FY12 revenues we see strong growth visibility for the company. Further NBCC bagged a massive INR45 bn worth PMC contract for the redevelopment work of Kidwai nagar (E) in Delhi which will pan across 86 acres entailing a total development of 12mn square feet to be executed over a period of 5 years. We believe the order will provide strong growth traction to NBCC beyond FY13e. In FY13 NBCC is likely to complete 2 real estate projects with saleable area of 2.4lac sq ft mainly comprising of a commercial complex in Okhla, Delhi. Debt free balance sheet with surplus cash, High return ratio-NBCC is a debt-free company with cash surplus of INR1325 crore. The significant cash surplus has been on account of better (negative) working capital management. The negative working capital has been on account of advances received from customers and retention margin from the subcontractor. It reported RoE and RoCE of 26% and 31% in FY12, respectively, backed by strong operating performance and asset light model. We are initiating coverage on the stock with a “STRONG BUY” rating and a target price of INR 224 per share," says Microsec research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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