Nod for Delhi development projects may push up NBCC's execution in future

The NBCC stock has shed more than 58 per cent of its value over the past one year on execution worries and muted performance in the first half of 2018-19 (FY19). The company, a project management consultant, bags government orders on a nomination basis. Its margins in the September quarter were disappointing, given the change in the accounting policy. 

Further, the company was not able to consolidate financials of a subsidiary, Hindustan Steelworks Construction (HSC), because of some issues leading to consolidated results falling short of the Street estimates.  

The stock reaction, however, is overdone, observe analysts.  The company currently has a strong order book of close to Rs800 billion, which is growing. At 13.5 times, the 2017-18 FY18 revenue figure implies strong revenue visibility. The other reason for the Street optimism is progress on execution. 

Two of the three colony redevelopment projects, delayed because of environmental concerns, have now been cleared. This is likely to start contributing from Q4 FY19, the management hopes. The company is also hopeful on positive outcome in the third project at Nauroji Nagar in Delhi.

Of its order book, the company has awarded projects worth Rs70 billion to date, and is likely to award projects worth Rs40-50 billion till FY19 end. The company is undertaking the stalled Amrapali project (in NCR), which is a good business opportunity as it comes with a project management fee of Rs8 billion and without any capital commitment. The company has expressed economic interest to acquire debt-loaded JP Infra. Besides, it is in advanced stages of talks to develop some of Air India's land bank in Delhi in addition to orders for railways.

While analysts remain cautious on the present market-wide liquidity concerns for the company's large, self-funding colony redevelopment projects, stock prices factor in most such concerns. Further, the pickup in execution from here on can lead to better earnings moving forward. Binod Modi at Reliance Securities says the sharp correction over the past five months on account of tree cutting in Delhi redevelopment projects is overdone, and further price decline seems to be limited.