NBCC's rise depends on project execution, analysts slash FY20 estimates

The NBCC stock has corrected almost 44 per cent since its March highs and by 72 per cent since its peaks in November 2017. While the company has a strong order book, slow progress on execution has hit profit growth and disappointed investors. The company’s order book, largely from project consultancy management (PMC) of the government, is pegged at Rs 80,000 crore, which is more than 8x it's FY19 revenues. In addition to this, it expects orders worth Rs 5,000 crore each in December and March quarters.

Given the execution issues, the company’s September quarter revenues declined about 30.6 per cent year-on-year (YoY), while profit before tax slid 24.3 per cent. PMC segment revenues fell 25 per cent YoY due to weak execution, led by approval delays and seasonal factors.  The segment contributes 95 per cent to overall revenues. Other segments such as real estate and engineering procurement construction (EPC) disappointed as well. 

Analysts say key projects and poor pace of realty monetisation has kept the overall execution trajectory lacklustre. In Delhi redevelopment projects, while NBCC has sold about Rs 4,000 crore worth of commercial space in Nauroji Nagar project to date, the total amount of funds to be generated in this redevelopment project is Rs 32,000 crore. Thus, improvement in financials is dependent on pace of realty monetisation. In the AIIMS redevelopment project, the company is still awaiting the tree cutting clearances to be given by the Delhi government. 

With redevelopment projects suffering, it is not surprising that the company’s profitability is dented. Post a steep decline in revenue and worsening operating profitability, analysts at Anand Rathi say that FY20 guidance (15-20 per cent revenue growth) is unlikely to be attained. They estimate revenues to decline by over 30 per cent, with profits declining by more than half, as compared to FY19.

Analysts at Edelweiss Research factored in weak performance and have revised the firm's FY20 earnings estimates lower by 35 per cent. Clearances for large projects and monetisation of the real estate inventory would be key triggers, they feel.