National Buildings Construction Corporation Ltd - Karvy Online

Aug 27, 2015 National Buildings Construction Corporation Ltd Aug 27, 2015

Industrials - Engineering & Construction Svcs

National Buildings Construction Corporation Ltd Bloomberg Code: NBCC IN

BUY

India Research - Stock Broking

Recommendation (Rs.)

Robust Order Book to Boost Revenue and Profit We expect revenue and PAT to grow at CAGR of 13.1% and 16% respectively during FY14 to FY17E. RoE and RoCE are expected to expand by about 2% by FY17E as compared to FY15. Government initiatives for development of infrastructure projects to boost Indian economy offer further prospects of increase in the company’s order book and sales. Huge scope of business in GCC countries in association with overseas partners/agencies.

Strong order book lays the foundation for future visibility on robust top line: The order book size is expected to stand at Rs.300-350 Bn by the end of this fiscal. Outstanding order book at the end of Q1FY16 is about Rs.260 Bn which gives the visibility on top line growth and profit. Management guides for sales of Rs.60000Mn during FY16E. Public Works Organization (PWO) status augurs well for NBCC: NBCC is explicitly notified as a Public Works Organization (PWO) construction agency to which PSUs and autonomous bodies can award works on nomination basis. Asset light business model with impressive financial track record: NBCC has asset light business model, as it operates in Project Management & Consultancy (PMC) services which contribute 85% of total revenues and more than 65% of the PBT. In FY15, the company enjoys high RoE and RoCE above 22.6% and 35.2% respectively and expect to maintain the same.The company is debt-free and thus has no interest cost. It maintains a current ratio of more than 1.2x which is clear evidence of its robust fundamentals.

Valuation and Outlook Its diversified business model in construction sector is backed by commendable balance sheet with high cash balance and zero debt make it a buy for a time horizon of 9-12 months. At CMP of Rs.938, the stock is trading at 26.8x FY17E EPS and we recommend a “BUY” with a target price of Rs.1250 representing 35.8x FY17E EPS, with an upside potential of 33%.

Currently, NBCC is trading at 5.9x of FY17E BV. Historically, the stock has traded between wide range of 1.1x to 9.6x TTM BV. We have assigned a 7.9x FY17E BV of Rs.158.0 per share for a target of Rs.1250 representing an upside potential of 33%. Exhibit 1: Valuation Summary (Rs. Mn) YE Mar (Rs. Mn) Net Sales EBITDA

EBITDA Margin (%)

FY13

FY14

FY15

FY16E

FY17E

32321

40670

46621

53162

58438

6.0

6.2

6.2

7.9

9.0

1930

2514

2870

4215

2075

2472

2774

3381

4194

RoE (%)

23.8

23.8

22.6

23.3

24.1

PE (x)

17.3 7.1

20.6 7.6

23.1 41.4

28.2 33.3

938

Target Price

1250

Upside (%)

33

Stock Information Mkt Cap (Rs.Mn/US$ Mn)

112548 / 1698

3M Avg. daily volume (Mn)

0.7

52-wk High/Low (Rs.) Beta (x)

Sensex/Nifty

1214 / 415

1.2

25715 / 7792

O/S Shares(Mn)

120.0

Face Value (Rs.)

10.0

Shareholding Pattern (%) Promoters

90.0

FIIs

2.2

DIIs

1.1

Others

6.7

Stock Performance (%) Absolute

Relative to Sensex

1M

3M

6M

12M

(11)

17

10

119

(4)

25

22

124

Source: Bloomberg

Relative Performance* 1400 1050 700 350 0 Aug-12

Aug-13 NBCC

Aug-14

Aug-15 Sensex

Source: Bloomberg; *Index 100

5273

Adj. Net Profit EPS (Rs.)

CMP (as on Aug 26, 2015)

34.9 26.8

Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price

For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters

Analyst Contact Joyjit Sinha

040 - 3321 6275

[email protected]

1

Aug 27, 2015 National Buildings Construction Corporation Ltd

Company Background

Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15

FY16E

FY17E

Net sales

46621

53162

58438

EBITDA

2870

4215

5273

Optg. Exp (Adj for OI) Depreciation Interest

43751

23

-

Other Income

1466

Tax

1137

PBT

Adj. PAT

48947

53165

23

23

-

-

638

742

4313

4830

5991

2774

3381

4194

1449

1797

Profit & Loss Ratios EBITDA margin (%)

Net profit margin (%) P/E (x)

EV/EBITDA (x)

Dividend yield (%)

6.2

7.9

9.0

41.4

33.3

26.8

5.7

6.4

8.5

6.0

36.3

6.4

7.2

23.1

17.9

Source: Company, Karvy Research

Cash Flow (Rs. Mn)

Balance sheet (Rs. Mn) FY15

FY16E

FY17E

Total Assets

47446

50639

54965

Current assets

46321

48407

52729

Total Liabilities

47446

50639

54965

0

0

0

Net Fixed assets Other assets Networth Debt

Current Liabilities Other Liabilities

262 863

13243 33753

450

307

284

1925

1951

15816

18964

34213

35548

609

453

Balance Sheet Ratios RoE (%)

RoCE (%)

Net Debt/Equity

National Buildings Construction Corporation Ltd. (NBCC) is a Navaratna enterprise under the Ministry of Urban Development, Government of India. It operates mainly in three segments, i.e. (i) Project Management Consultancy (PMC), (ii) Real Estate Development and (iii) EPC Contracting. Under the umbrella of PMC segment, it covers roads, hospitals & medical colleges, institutions, offices, airports, bridges, Industrial and environmental structures etc. The real estate segment engages into executing commercial real estate projects such as buying land, developing the land and selling it off and re-development of Government properties etc. NBCC’s EPC segment executes projects such as chimneys, cooling towers and various types of power plant works. NBCC ventured into overseas operations executing projects of diverse nature in countries like Libya, Iraq, Yemen, Nepal, Maldives, Mauritius, Turkey and Botswana. NBCC recently set up a wholly owned subsidiary company named NBCC Services Ltd., to act as execution and implementation agency to undertake CSR projects and related activities.

22.6 35.2

Equity/Total Assets P/BV (x)

-

0.3 8.7

23.3

24.1

33.2

34.5

-

-

0.3

0.3

7.1

5.9


Exhibit 2: Shareholding Pattern (%)

FY15

FY16E

FY17E

PBT*

3911

4830

5991

Tax

(499)

(706)

(642)

Others

(496)

(669)

(777)

Investment

(144)

0

0

Depreciation

23

Changes in WC

(62)

CF from Operations Issue of Equity Share Inc/(Dec) of debt Others

2878

0 0

(2085)

23

1801

5278

23

178

4773

0 0

(2670)

0 0

(2433)

CF from Investing

(2229)

(2670)

(2433)

CF from Financing

(705)

(806)

(878)

Dividends

Change in Cash

(705)

(57)

(806) 1802

(878) 1461

Source: Company, Karvy Research, * After exceptional item

Exhibit 3: Revenue Segmentation - FY15 FIIs 2.2%

Promoters 90.0%

DIIs 1.1%

PMC 84.8%

EPC 4.5%

Others 6.7%


Real Estate 10.8%


2


Robust balance sheet, zero debt NBCC has maintained a commendable balance sheet with zero debt. Over the years, its cash & equivalents have reached Rs.10597Mn at the end of FY15. It enjoys high RoE and RoCE of above 22% and 35% respectively in FY15. We expect RoE and RoCE to expand marginally by 2% by FY17E. It maintains a current ratio of more than 1.2x which is clear evidence of its robust fundamentals.

Revenues and EBITDA to increase at CAGR of 13% and 28% respectively during FY14-FY17E We expect the revenue to grow at CAGR of 13% during FY14-FY16E. EBITDA to clock at CAGR of 28% on standalone basis on the back of development of infrastructure projects to boost Indian economy. Management guides for sales of Rs.60000 Mn during FY16E and grow at least 30% post FY16E on the back of strong execution of robust order book.

Asset light business model could contribute to keep margins intact NBCC has asset light business model, as it operates in project management & consultancy (PMC) services which contribute 91% of total revenues and more than 65% of the PBT. Capital expenditure to be limited and hence the depreciation which could keep the margins intact.

Notified Public Works Organisation (PWO) construction agency NBCC is a notified PWO agency, by virtue of which government department(s), PSUs and autonomous bodies award works on nomination basis. Ministry of Urban Development after evaluating their financial strength and technical competence authorises such nominations for PSUs set up by the Central or State governments to carry out civil or electrical works.

Robust order book build-up The order book size is expected to stand at Rs.300-350 Bn by the end of this fiscal. Outstanding order book at the end Q1FY16 is about Rs.260 Bn which gives the visibility on top line growth and profit. Government initiatives for development of infrastructure projects to boost Indian economy offer further prospects of increase in the company’s order book. Huge scope of business in Gulf Cooperation Council (GCC) countries in association with overseas partners/agencies could strengthen its order book.

Preferred Company by PSUs and Government NBCC, being a PSU company, which is majorly in PMC, Real estate development and EPC contracting is well positioned to benefit from orders on nomination basis from the ministries and departments of state and the union governments of India.

Business Operations Civil Construction for Infrastructure Projects (EPC) NBCC prefers high order value projects with smaller overhead cost which aims for higher profit margins. Its pre-qualification and financial entry barriers for pursuing high value projects would provide edge over the competitors who bid for the projects. NBCC’s EPC segment executes projects such as chimneys, cooling towers and various types of power plant works.

Project Management Consultancy (PMC) In this vertical, services offered by NBCC consist of wide range of management and consultancy services in civil construction projects. This includes residential and commercial complexes, re-development of colonies, educational institutions, hospitals, infrastructure works for security personnel’s border fencing works, roads and solid waste management projects all over India which involves preparation of construction programme, man power planning and utilization, contract management, implementation of quality plan, monitoring of works etc. It also offers post-construction services i.e. maintenance of assets.

Real Estate Development NBCC has massive plan to tap the real estate market in the country. It aims for construction of residential and commercial projects in every state and main cities of the country. Its objective is to cover Tier-II cities like Bhubaneswar, Meerut, Faridabad, Kochi, Patna, Ghaziabad in addition to Delhi NCR and other metros. It is actively participating in various auctions/ sale of land parcels by government agencies/ departments/authorities/ municipal corporations to increase its land bank. NBCC is also looking forward for development of real estate on government department owned land parcels and privately owned lands on joint venture basis. In real estate segment, the company buys land from private and government agencies, develops the land and then sells off. Further, the company also carries out re-development of government colonies via Public Private Partnership (PPP) mode. 3


Exhibit 4: Business Assumptions Y/E Mar (Rs. Mn)

FY14

FY15E

FY16E

FY17E Comments

India Business (Standalone) Revenue

Outstanding order book at the end of Q1FY16 58438 is ~Rs.260 Bn. Management guides the order book size by the end of this fiscal to be at Rs.300-350 Bn. With the order book size Rs.300 10.0 Bn, we have factored-in the execution level of 20%.

40670

46621

53162

Revenue Growth (%)

25.8

15.3

14.0

EBITDA

2514

2870

4215

Combined Normalized PAT

2472

2774

3381

EPS (Rs.)

20.6

23.1

28.2

Fully Diluted EPS Growth (%)

19.1

12.2

21.9

-

-

-

Net CFO

(4055)

2878

5278

4773

Net Debt

-

-

-

-

EBITDA Margins (%)

6.2

Capex (ex. Acquisition) - cash capex

6.2


7.9

5273

9.0

We are expecting the EBITDA margins to expand.

4194 Asset light business to keep the depreciation cost low. We are expecting a robust growth in net profit 34.9 and EPS on the back of robust order book with 24.1 normal execution pace.

- We have assumed no capex in the next two years. We are expecting robust cash flow from operation on the back of robust order flow. The company is debt free company. Hence, there is no interest cost.

Exhibit 5: Operating Revenue & Growth

58438

53162

46621

30% 20% 10%

FY17E

0% FY16E

34477

40670 FY14

FY13

0

FY12

20000

32321

-7.1%

40000

14.0% 10.0% 15.3%

FY15

25.8%

60000

Revenue (Rs. mn)

-10%

We expect operating revenue to grow at a CAGR of 13% during FY14-17E while registering a growth of 14% and 10% in FY16E and FY17E, respectively. Its PMC division contributes more than 85% of the total revenue.

Growth %


Exhibit 6: Valuation Summary Particulars (Rs. Mn)

FY14

FY15

Real Estate

6250

4968

32889

39172

16

22

6

7

EPC

PMC

2070

1500

Margins % Real Estate EPC

PMC

4

NBCC is focusing on its asset light PMC segment, which has PBT margins of around 7% and contributes 85% of the total revenue. Margins are highest in its real estate segment which contributes more than 10% of its total revenue.

18


4

Aug 27, 2015 National Buildings Construction Corporation Ltd Exhibit 7: EBITDA and EBITDA Margin (%) 6000

0

2870

FY13

10%

5273

6.2%

2514

FY12

9.0%

4215

6.2%

4.4% 1930

2000

6.0%

1510

4000

7.9%

5%

FY14 FY15 FY16E FY17E EBITDA (Rs. Mn) EBITDA margins (%)

0%

We expect EBITDA to grow at a CAGR of 28% on the back of the company’s robust order book and is expected to yield better margins. Being a PSU and notified PWO construction agency status, NBCC has an edge against any other company to bag orders from different departments of 52 ministries under union government and from various state governments’ ministries as well.


Exhibit 8: Net Fixed Assets Vs. Depreciation (Rs. Mn) 23.0

150

25

23.0

20

262

14.0 225

233

243

14.0

250

23.0 307

20.0

284

350

15 10

We don’t expect any major capex during the next couple of years which will not affect the margins. Depreciation cost expected to be constant.

5 50

FY12

FY13 FY14 FY15 Net Fixed Assets

0 FY16E FY17E Depreciation


5.5%

2472

0

2075

1100

1902

2200

6.1%

FY12

FY13

FY14

6.0% 2774

3300

6.4%

7.2%

10% 8%

6.4% 3381

4400

4194

Exhibit 9: Net Profit & Net Profit Margins (Rs. Mn)

5% 3%

FY15 FY16E FY17E

0%

We expect net profit to register a growth of 22% and 77% in FY16E and FY17E respectively and grow at a CAGR of 30% over FY15-17E. We expect net profit margins set to expand from 6.0% in FY15 to 7.2% in FY17E.

Net Profit (Rs. Mn ) Net Proft Margins (%) Source: Company, Karvy Research

Exhibit 10: Return on Assets 8%

7.6%

6%

6.7%

6.4%

7%

5.8%

5.7%

We expect sharp increase in Return on Assets during FY16E and FY17E.

5.1%

5% 4%

FY12

FY13

FY14 FY15 FY16E FY17E Return on Assets (RoA)


5

Aug 27, 2015 National Buildings Construction Corporation Ltd Exhibit 11: RoCE vs RoE (%) 40%

35.7%

35.1%

35.2%

34.3%

35%

33.2%

34.5%

30% 25% 20%

23.9%

23.8%

23.8%

FY12

FY13

FY14

24.1%

22.6%

23.3%

FY15

FY16E FY17E

RoE (%)

NBCC’s RoE and RoCE had been constant historically. We are expecting a marginal expansion of RoE and RoCE during FY17E.

RoCE (%)


Exhibit 12: Current Ratio 1.6 1.5

1.5 1.4 1.3 1.2

1.3

1.4

1.4

FY13

FY14

FY15

1.4

NBCC is a cash rich company and maintain a healthy cash flow with current ratio more than 1x. We expect it to maintain the same during the next two financial years.

1.3

FY12

FY16E

FY17E

Current Ratio (x) Source: Company, Karvy Research

Exhibit 13: Company Snapshot (Ratings) Low 1 Quality of Earnings Domestic Sales Exports

Net Debt/Equity

33

Working Capital Requirement Quality of Management Depth of Management Promoter

Corporate Governance Source: Company, Karvy Research

High 2

3

4

5

33 33 33 33 33 33 33 33

yyNBCC is focusing on engineering and consultancy business segments. Its major clients in PMC segment include ministries such as Ministry of Urban Development, Home Affairs, Housing and Poverty Alleviation, Rural Development, Commerce & Industry, Labour & Employment, Information & Broadcasting, Petroleum & Natural Gas, Power, New & Renewable Energy, Defence, External Affairs, Corporate Affairs, Finance, State governments, IITs and NITs amongst others.

yyExport sales are low though NBCC is exploring gulf countries as a prospective market for planned infrastructure development. Besides this, NBCC’s overseas business interest lies in Botswana, Malaysia and Turkey. yyNBCC is a debt-free company and having no finance cost.

yyNBCC is generating healthy operating cash flows and we believe the company to meet all of its working capital requirements through its cash balances.

yyNBCC is a PSU navaratna company with promoter’s shareholding of 90%. The government, being promoter, is likely to offload 15% stake in NBCC through FPO (Follow-on Public Offering) or OFS (Offer for Sale) as part of government’s disinvestment program, and also to meet the norms of minimum public shareholding of 75% for all PSUs by Aug 17, 2017. 6


Valuation & Outlook NBCC is a solid player in the construction sector, well placed to tap government initiatives for development of infrastructure projects to boost Indian economy and offers further prospects of increase in company’s order book. Its status of PWO places the company in a comfortable zone to win contracts from the ministries and departments of state and central governments. Its diversified business model in construction sector is backed by commendable balance sheet with high cash balance and zero debt make NBCC a buy for a time horizon of 9-12 months. Historically, the stock traded within wide PEx band of 4.4x and 37.6x. At CMP of Rs.938, the stock is trading at 26.8x FY17E EPS and we recommend a “BUY” with a target price of Rs.1250 representing 35.8x FY17E EPS, with an upside potential of 33%. Exhibit 14: PE Band 1500

40 30

1000

20 500

15x

25X

40X

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Mar-15

Jan-15

Feb-15

Dec-14

Nov-14

Oct-14

Sep-14

Jul-14

Aug-14

Jun-14

Apr-14

May-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Jul-13

4x

Aug-13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Dec-12

Oct-12

Nov-12

Sep-12

Aug-12

0

10 0

PE (RHS)


Currently, NBCC is trading at 5.9x of FY17E BV. Historically, the stock has traded between wide range of 1.1x to 9.6x TTM BV. We have assigned a 7.9x FY17E BV of Rs.158.0 per share for a target of Rs.1250 representing an upside potential of 33%. Exhibit 15: PB Band 1600 1200 800

Price

BV

P/BV

4x

8x

Aug-15

Jul-15

Jun-15

Apr-15

May-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Dec-12

Nov-12

Oct-12

Sep-12

0

Aug-12

400

12x


Key Risks yyNBCC is too much dependent on government projects. Any change in government policy or change in fund allocation may adversely effect the order book. yyNBCC aggressively foraying into real estate segments and the segment is subject to legal uncertainties which may delay the award and execution of the projects affecting adversely revenue and profit. yyGovernment awarding projects to any new players through competitive bidding may affect the order book and margins.

7


Financials Exhibit 16: Income Statement YE Mar (Rs. Mn)

FY13

FY14

FY15

FY16E

FY17E

Revenues

32321

40670

46621

53162

58438

Operating Expenses

30391

38156

43751

48947

53165

27.8

30.2

14.2

46.9

25.1

Growth (%) EBITDA

Growth (%)

Depreciation & Amortization Other Income EBIT

Interest Expenses

(6.3)

1930

14

1152 3068

0

25.8

2514

14

1060 3560

0

14.6

2870

23

1466

14.0

4215

23

638

9.9

5273

23

742

4313

4830

5991

0

0

0

PBT (After exceptional item)

3015

3336

3911

4830

5991

Adjusted PAT

2075

2472

2774

3381

4194

FY13

FY14

FY15

FY16E

FY17E

15378

11960

10597

15086

18278

6324

9671

11457

9267

11209

Tax

Growth (%)


940 9.1

864

19.1

1137 12.2

1449 21.9

1797 24.1

Exhibit 17: Balance Sheet YE Mar (Rs. Mn) Cash & Equivalents Sundry Debtors Inventory

Loans & Advances Investments

Gross Block Net Block

Miscellaneous Total Assets

Current Liabilities & Provisions Debt

Other Liabilities Total Liabilities

Shareholders Equity Reserves & Surplus Total Networth

Total Networth & Liabilities Source: Company, Karvy Research

8303 4222 1621

12457

5087 1467

379

354.4

1198

1041

243

225

17041 6123 1611

575 262 355

17257

6736 1611

575 307 375

15909 7289 1611

575 284 385

37289

41908

47446

50639

54965

-

-

-

-

-

25116

2666

27782

1200 8307

9507

37289

28580

2055

30635

1200

10073

11273 41908

33753

450

34203

1200

12043

13243 47446

34213

609

34822

1200

14616

15816 50639

35548

453

36001

1200

17764

18964 54965

8


Exhibit 18: Cash Flow Statement YE Mar (Rs. Mn)

FY13

FY14

FY15

FY16E

FY17E

PBT

3016

3335

3911

4830

5991

0

0

0

0

0

Depreciation Interest

Tax Paid

13

23

23

23

(319)

(499)

(706)

(642)

(987)

(402)

(563)

(667)

902

(4055)

2878

5278

4773

(103)

6844

(3290)

(3146)

(3000)

995

7853

(2229)

(2670)

(2433)

(488)

(526)

(705)

(806)

(878)

FY13

FY14

FY15

FY16E

FY17E

EBITDA Margin (%)

6.0

6.2

6.2

7.9

Net Profit Margin (%)

6.4

6.1

6.0

6.4

Inc/dec in Net WC

Other Income (Interest) Other non cash items

Cash flow from operating activities Inc/dec in capital expenditure Inc/dec in investments Others

Cash flow from investing activities Dividend paid

Cash flow from financing activities Net change in cash


(420)

13

(578)

(1086)

(43) (23)

1121

(488) 1409

(5854)

(243) (4)

1013

(526) 3272

(62) (94) 0

1061

(705)

(57)

1801

(106) 0

476

(806) 1802

178

(111) 0

567

(878) 1461

Exhibit 19: Key Ratios YE Mar EBIT Margin (%)

Dividend Payout ratio Net Debt/Equity RoE (%)

RoCE (%)


9.5 2.2

-

23.8 35.1

8.8 2.4

-

23.8 34.3

9.3 2.4

-

9.0

9.1

10.3

2.1

2.3

-

7.2 -

22.6

23.3

24.1

35.2

33.2

34.5

Exhibit 20: Valuation Parameters YE Mar

FY13

FY14

FY15

FY16E

FY17E

EPS (Rs.)

17.3

20.6

23.1

28.2

34.9

BV (Rs.)

79.2

93.9

110.4

131.8

158.0

DPS (Rs.) PE (x)

P/BV (x)

EV/EBITDA (x)

Market Cap/Sales (x)

37.5 7.1 1.5

NA 0.5

50.0 7.6 1.7 2.8 0.5

55.0 41.4

8.7

36.3

2.5

60.0 33.3

7.1

23.1

Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price

2.1

80.0 26.8

5.9

17.9

1.9

9

Aug 27, 2015 National Buildings Construction Corporation Ltd Stock Ratings Buy

:

Sell

:

Hold

:

Absolute Returns > 15%

5-15%