Pick-up in execution holds key for NBCC

Strong order book offers long-term revenue visibility

NBCC, with a growing order book, continues to enjoy the Street’s confidence enriching investors to the tune of 75 per cent over the last one year. The current order book of about Rs 75,000 crore is almost 10 times its FY17 revenues, and is one major reason for comfort. Being a Navratna public sector company, which does project management consultancy (PMC) for other government bodies, gives it an edge. It bags about 80 per cent of the PMC work on a nomination basis, with only 20 per cent won through competitive bidding, ensuring a steady order book growth. The current order book itself gives a good revenue growth visibility for at least the next five years, say analysts, as the management has maintained a guidance of over 30 per cent growth in the long term. Not surprising then that the stock had scaled an all-time high of Rs 291.75 in early November. However, a weak second quarter performance thereafter has led to a correction of about 11 per cent in stock prices to Rs 262.50 levels now. 

The company, after seeing a flattish revenue growth during the first quarter, saw its revenues decline 9.3 per cent year-on-year (y-o-y) and 10.6 per cent sequentially during the September quarter. Though implementation of the goods and services tax (GST) is said to have impacted the same, weak execution was also a major reason for the company’s first half performance. Pankaj Kumar at Kotak Securities said the  projects were in the initial stages. The PMC segment, which contributes the most to revenues (about 85 per cent), reported about 2.8 per cent y-o-y decline. Thus, Street sentiments were bound to get impacted. 

Operating performance, however, did get a boost from the upfront fee booked in some projects — where work has recently begun — and realisation of certain old dues. Consequently, standalone profit jumped 10 per cent y-o-y. Nevertheless, for the second half to see some significant growth, execution holds key. Analysts at Kotak, thereby, have revised their earnings estimates for FY18 and FY19, factoring in weak execution in H1FY18. 

On the positive side, the management expects to award tenders worth Rs 5,000 crore during the second half of FY18, say analysts. Further, it expects approvals for the three AIIMS projects (Rs 9,000 crore), the Ghitorni project with CPWD (NBCC’s share being Rs 6,000 crore), and the Delhi Development Authority project over the December quarter. The company has recently been awarded Rs 524-crore construction projects at IIT Bhubaneswar, which follows the orders of Pragati Maidan Phase I (Rs 2,150 crore), Ghosikhurd irrigation (Rs 870 crore), and Nauroji Nagar (Rs 1,950 crore) projects. While work on these is expected to commence over the next couple of quarters, the pace of work will determine stock performance, add analysts. The stock is currently trading at an expensive 42 times FY19 earnings estimates.