Hold NBCC; target of Rs 223: Edelweiss

Edelweiss' research report on NBCC

NBCC management, during our recent interaction, indicated a shift in focus from order accretion to execution. The company is now geared to award design-build contracts/turnkey contracts of INR10bn plus and prune execution timeframe to 18-24 months. While it has already awarded ~INR60bn worth projects (Pragati Maidan, Ghosikhurd irrigation) over the past 1.5 months, tendering is underway for several large projects. We expect execution to gather pace in FY19 when work gathers steam on AIIMS, redevelopment projects in Delhi, among others. Maintain ‘HOLD’ with target price of INR223.

Outlook

Burgeoning public sector spending on building construction (Buildings: Dawn of a new era) is triggering significant order accretion for NBCC. We expect the company to commence work on large value projects over Q4FY18/Q1FY19 and hence revenue growth to step-up in FY19. Pace of work on these projects will determine stock performance, in our view. We maintain ‘HOLD’ with target price of INR223, based on 33x FY19E EPS.