NBCC: Concerns over project funding looms

Analysts say reports on NBFC creation trigger uncertainties around funding new projects

Just when the going was good for NBCC (India), the government-owned realtor, focusing on urban infrastructure projects, a development on Thursday disturbed its party. Based on a Press Information Board press note, it appears the management may float a non-banking financial company (NBFC) to fund its upcoming businesses, particularly the redevelopment projects in New Delhi totaling to Rs 35,000 crore. With this, its order book stands at Rs 73,000 crore, providing earnings visibility of over 12 years.

While the company has “dismissed” PIB’s note, analysts say news such as this increases uncertainties on how NBCC would fund its coming projects. “The company is speculating ways to finance redevelopment projects. But, putting up a NBFC is a stretch beyond all measures,” says Rohit Natarajan of IDBI Capital.  The NBCC stock lost three percent on Thursday to close at Rs 272. Analysts say it is important for NBCC to stay focused on its core business. While initiating ‘buy’ recommendation on the stock, analysts at Citi said they prefer NBCC as it is the only public sector unit (PSU) with a long track record and the skills to undertake project management consultancy and redevelopment works. Under these circumstances, any unrelated business diversification could hamper the investor confidence.

However, NBCC has been successful in funding the redevelopment projects, either by way of outright sale of real estate or sale of commercial space or by pre-selling the proposed redevelopment parcel. This is why analysts are apprehensive about the recent development and expect more clarity from the management. Also, NBCC is among the few PSUs to maintain high cash levels. “Finding ways to effectively deploy its cash funds is becoming a challenge for NBCC, given the overall slowdown in the real estate market,” says an analyst from a domestic brokerage.

Despite Thursday’s development, analysts are confident on the stock. “As NBCC’s land parcels are at attractive locations, I won’t change my stance until there is clarity on fundings,” says Natarajan. He anticipates NBCC’s revenues to expand 33 per cent in FY16-18, and says the visibility for smart cities, affordable housing and railways will benefit NBCC. While Santhosh Yellapu of Angel Broking agrees with Natarajan, he cautions investors to utilise any decline in price to take fresh exposure in the stock. “The recent run-up in the stock price offers little risk-reward to investors,” he adds.