NBCC - A Quality Cash Bargain

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A Wonderful PSU stock available at ridiculously cheap valuations !!


  • NBCC Ltd - A Quality Cash Bargain with Growth
  • Content Index Our Research Desks views on the Stock Idea :- Slide #3 NBCC Limited Investment Snapshot :- Slide #9 NBCC Limited Business Overview :- Slide #11 Investment Arguments :- Slide #22 NBCC Limited Financials:- Slide #28 Concerns & Reasoning :- Slide #32 Conclusion:- Slide #34 Specialists in discovering Multibagger stocks
  • Dear Members, Before we get into the details of this Months Multibagger Stock - NBCC, let us understand the broad reasons for the recommendation of this idea through the following questions, - How many times do we see a company with a Cash Balance of 1646 Cr and no Debt, yet available at a Market Capitalization of 1520 Cr (Cash Bargains) ? - Have you seen a company which requires neither Fixed Assets nor Working Capital to grow its Business ? In fact, the business generates significant Floats through a Negative Working Capital cycle which adds to its Cash Reserves. - How many stocks can provide Growth Visibility in volatile times ? Company has a Strong Order Book (>3X FY13 Revenues) which provides visibility for decent growth going forward. Order Book Traction continues to strengthen. - How many Managements can boast a fantastic 10 Year Track Record on all parameters Revenues (18% CAGR), Operating Profit (27% CAGR), Profit after Tax (29% CAGR) and Net worth (41% CAGR) ? - How many stocks are available in this Market which has a Cash Surplus Balance sheet with ROCEs of > 50% and yet available at P/E multiple of 7X, EV/ EBIDTA multiple of 5X and provides a Dividend Yield of 3%. Our Stock Idea for this Month fits all the above descriptions. To give an Idea about the Business of NBCC, the company is primarily an Implementing agency of various Government departments. The company has a status of Public Works Organization which is parallel to CPWD (Central Public Works department). It does Project Management and Consultancy (PMC) for the Government department projects and gets a Margin of around 5-7% on the contract value. It outsources the Contracts to sub-Contractors for execution. The company gets Advances from the Client and pays these contractors with a delay which leads to a Negative Working capital cycle for the company. This ensures that the company generates strong Cash from operations and cost free liabilities to fund its other Investments. While PMC Is the main stay business. NBCC has recently become aggressive on its Real Estate Specialists in discovering Multibagger stocks Our Research Desks views on the Stock Idea
  • business where NBCC buys Government/ PSU lands (or) forms a JV with them to develop real estate projects. Looking at the Land Bank of the company and its past track record, we believe that Real Estate business division will be a significant value creator going forward. So, why is the Stock still available at ridiculously cheap Valuations ? We have been tracking the stock since its IPO last year and even then it was priced at extremely attractive levels. But some of our concerns overwhelmed us against Investing in the stock, most of which have gradually reduced now. Some of the common concerns include, - High Contingent Liabilities :- The company had a very high Contingent Liability of around 1500 Cr during its IPO last year. Currently, its Contingent Liabilities is less than 200 Cr and the run-down in these liabilities has been smooth with no impact on the companys Financials which makes us believe that, Contingent Liabilities is not a big risk. -Uncertainty over Capital Allocation by the Management :- Many Investors are concerned that the company may enter unrelated areas under the influence of Government and thus there is always a huge uncertainty over its excess cash. Investors also worry that Minority Investors would not be able to profit from this Cash generation and hence the stock can become a Value Trap. We differ on this point completely. The company has stayed away from all unrelated areas and also has been allocating its Cash reserves well to build up its Real Estate business which would be Value Additive. Also the Dividend Payouts have been increasing consistently over the years and thus we believe that the steep discount attributed to its Cash by Market participants is unwarranted. The Capital Allocation track record and Cash Flow Management of the company has been nothing short of impressive. Even the discipline in the way their Real Estate projects are structured gives us confidence. Specialists in discovering Multibagger stocks Our Research Desks views on the Stock Idea
  • - Change in Government Policy can bring the Business down :- Many Investors including us believe that the company doesnt really add any significant value to deserve such attractive Margins and Terms of trade. Therefore the general concern is that there might be a change in Policy for Government Ministries to outsource contracts directly to subcontractors by bypassing NBCC, thereby making the companys operations redundant. However, we would like to differ on this point a little bit. NBCC continues to be looked upon as an In-House construction division of the Government which will get the work done efficiently. Companys parentage and continuing recognitions from the Government such as PWO, Mini- Ratna unit etc ensures that the company would continue to be the nodal agency for the construction activities of all Ministries and PSUs. Most of these Government entities dont have the manpower, skill sets etc to conceptualize and deliver on these projects and thereby outsourcing them to a Co-PSU such as NBCC makes sense. Also, NBCC is recognized one of the few well run PSUs and recent Orders clearly shows that NBCC would be a clear beneficiary of all new Government constructions like Education Institutions, Hospitals, Housing Complexes, Re-Development projects, Power Contracts, Sewage Treatment plants, Commercial complexes etc. Only area where we might be concerned over the Long Term is the companys ability to maintain attractive Margins and Terms of Trade on contracts received through such Nomination basis. Till now the company has been able to maintain Good Margins and Strong Negative Working capital cycle, as can be seen from Incremental Orders. We would like to look at a change in this Terms of Trade as a Low Probability High Impact event which is already more than priced in the Market. We continue to estimate that the company will be able to make 5-7% Margins on its PMC business (with better Product mix) and continue to earn similar levels of Free Float. All in all, Governments patronage for NBCC looks strong to continue and can help the company grow by piggybacking on the increased spending by Government in New Construction across sub-sectors. With the increased allocation in Government departments, the companys order book continues to swell. Now lets understand some of the inherent positives of the companys Business model and see why the current price may be a stealer even after discounting for some of the Issues. Specialists in discovering Multibagger stocks Our Research Desks views on the Stock Idea
  • Our Research Desks views on the Stock Idea Large Growth Opportunity in PMC Business :- While all segments of PMC business can grow at a decent pace on the back of increased Government spending, the most interesting aspect comes from the re-Development of Old colonies in Delhi. Government has had a successful experience of redeveloping colonies like Moti Marg and East Kidwai recently. The re-Development is done in an interesting Self-Sustainable Revenue model where the construction costs are funded by 15% commercial exploitation of Land. The successful completion of these projects by NBCC has opened up massive prospects for future orders in other colonies. Each of the Re-Development project which NBCC has executed (or) in the Pipeline are huge projects with value of over 5000 Cr each. Continuous success in Re-Development can open as many as 30 such projects going forward. Company is able to bill 10% of construction costs as its PMC charges in these projects which indicates the growth potential in this area of business and also the future profit potential from Re-Developments. Mix of Low Margin-PMC Business and High Margin-Real Estate business :- Companys PMC business is a Cash cow where NBCC generates strong cash flow from both operations as well as Floats. The Margins in this business is considerably low and since there is no capital requirement for growth, the company continues to Invest its excess capital in its Real Estate projects which have strong Margins and provide adequate return on Capital employed (ROCE). For example, 2013 balance sheet of NBCC shows a Negative Capital Employed of 860 Cr in PMC business and a Positive Capital employed of 633 Cr in Real Estate business. Thus one business generates significant cash which is being deployed in a business with decent return ratios. This would help the company to earn better returns for every rupee invested in the company and also grow its business. Growth Potential in NBCCs Real Estate business & Ambitious Management :- NBCCs Real Estate business has a mix of two kinds of projects Projects developed on its own land purchased at Market prices and Projects developed on a Partnership basis by forming JVs with PSUs and Departments with excessive Land holdings. The company has been able to build a Land Bank of around 130 Acres which will help it to Specialists in discovering Multibagger stocks
  • Our Research Desks views on the Stock Idea to grow going forward. Company doesnt have a policy of hoarding Land Banks and looks to buy lands selectively which can be commercially exploited within 1-3 year time frame. With the tag of a PSU, NBCC has been able to win the trust of people and most of its projects have been tremendous successes. But the big opportunity lies in the JV model of partnering with Land owners to develop their un-utilized land banks. Size of unutilized Land Banks which can be commercially exploited across Government Departments is huge and there has been increasing traction in several Ministries to monetize these assets for funding their Investments. We believe that NBCC has a huge advantage here to grow by capitalizing on its parentage, just like what Godrej Properties is doing on their Groups land parcels. An example of this can be seen from the recent Tie-Up with the Public Works department to develop their 250 acre Land Parcel in Ghitorni, Delhi with a construction area of around 2 Lakh Square feet. One more important thing which we like about the company is the Managements ambitions in growing its Real Estate business. Management targets to start Real Estate projects in almost all states going forward and has an internal target of developing 10000 Homes with an Investment value of 6000 Cr by 2018. Companys Accounting policy is conservative and Real Estate Profits could surprise :- Company continues to book most of its Land purchases as Expenses on the P&L statement which ensures in an insignificant Gross Block on its Balance sheet. We believe that the current Land Bank has been bought at attractive prices and once the projects starts commercializing, we will see strong profits flowing to the P&L statement. Company also has a conservative accounting policy on its Real Estate business with Sales based accounting which results in a lag in its profit realization. All these could definitely surprise the currently skeptic Markets. Extremely Strong Cash Position to support Real Estate growth :- We believe that the companys PMC business which generates strong Cash combined with its strong Cash Balances should help the company to fund its Real Estate growth. The strong growth ambition in Real Estate should Specialists in discovering Multibagger stocks
  • Our Research Desks views on the Stock Idea help the company from not getting distracted in other un-related diversification which will result in in-efficient utilization of its Cash reserves. The company has added almost 870 Cr Rs to its Balance sheet over the last 6 years indicating its strong cash flow generation ability. Cash flow from Core Operating activity after Tax (Ex-Interest Income) is almost 100 Cr every year. In addition to this there is almost a 150 Cr Interest Income which is a recurring revenue for NBCC. All of this leads us to believe that the company will generate enough cash to fund its profitable Real Estate growth. When you combine all of this with a Valuation of P/E ratio of 7X, its easy to understand the Margin of Safety in the stock at the current prices which can buffer some of the negative surprises. We believe that the current Dogma about PSU stocks has gone to an extreme and it will shift as Market sentiments change overtime. This along with consistently strong performance by the company will help the stock to discover its true value. We can safely conclude that at the current prices, the stock definitely looks attractive as a Pure Value play. We believe that any Investor with an Investment horizon of 3-5 years, can certainly expect a re-rating of the stock combined with good Earnings growth. We believe that of all this makes the stock a relatively Low Risk High Return bet with a strong probability of delivering strong profits for Investors. It is nowhere near the High Conviction Ideas of ours, but the stock certainly deserves a decent Allocation. We would be releasing Multibagger Flashback report during this Month with a special focus on Asset Allocation and the importance of Portfolio Management in creating Wealth in Stock markets. The Special Report will also show the High Quality Mid-Cap Ideas across sectors which should be a part of your Portfolio. We generally run our Portfolio with 10-20 stocks and would urge you to follow the same. Specialists in discovering Multibagger stocks Regards, [ Gokul Raj . P, Head Investment Research ]
  • NBCC Investment Snapshot (as on Nov 27, 2013) Recommendation :- BUY Maximum Portfolio Allocation :- 2% Investment Phases & Buying Strategy 1st Phase (Now) of Accumulation :- 80% Current Accumulation Range :- 115-130 Rs NBCC is a Graham style Cash Bargain with the added advantage of strong growth visibility and a decent Quality business. We would like Investors to slowly accumulate the stock on every dip and increase the allocation in case of correction. Stock can definitely generate Higher Risk-adjusted returns. Core Investment Thesis : We believe that the company could create strong Value for Investors through its Real Estate Investments which are funded from the cash generated through its PMC business. Its unique business model and strong patronage from Government can help the stock to unlock its hidden value. Current Market Price Rs. 131 Current Dividend Yield 2.82% Bloomberg / Reuters Code NBCC. IN/ NBCC.NS BSE / NSE Code 534309/ NBCC Market Cap (INR BN / USD Mn) 15.94 /257.03 [1 USD Rs. 62.0] Total Equity Shares [Mn] 120.00 Face Value Rs. 10 52 Week High / Low Rs. 194.6 / Rs.96.0 Promoters Holding - 90.00% FII - 0.67% DII - 2.09% Other Holdings - 7.24% Specialists in discovering Multibagger stocks
  • Specialists in discovering Multibagger stocks Key Investment Highlights
  • Business Overview Specialists in discovering Multibagger stocks
  • NBCC A Snapshot NBCC is a leading player in the project management and consultancy segment (PMC) for Government projects and also does Civil Infrastructure work and Real Estate development. The company is also engaged in sewage treatment plants, roads, civil infrastructure for the power sector and structural works predominantly for state and central government ministries and various PSUs. Specialists in discovering Multibagger stocks In the PMC division, the company provides management and consultancy services for a range of civil construction projects such as residential and commercial complexes, redevelopment of buildings and colonies, hospitals, educational institutions, etc. In civil infrastructure for the power sector, the company provides engineering and construction services for power projects, including design and execution of (i) civil and structural works for power projects (ii) cooling towers and (iii) chimneys. In the real estate development division, the company focuses on residential and commercial complexes development.
  • PMC - Unique Business Model Specialists in discovering Multibagger stocks The company has established a relationship with different state and central government ministries, department, agencies and various public sector undertakings. NBCC enjoys automatic nomination status for PMC civil construction projects related to government projects. The company is also preferred for executing projects involving re- development of government colonies. The company is also involved in civil construction work for power projects thereby providing engineering and construction services. Companys track record of working with Government project enables them to get repeat business from such clients.
  • PMC - Business process Specialists in discovering Multibagger stocks NBCC sources most of its business through nomination where the client approaches the company for the project. NBCC appoints consultants through bidding who would prepare the detailed project report. NBCC executes a letter of intent with the client setting out the terms of engagement and fees. The consultant prepares Bill of quantities in consultation with NBCC and the same is submitted to the client for approval. NBCC monitors and supervises the work done by contractors and ensures the project meets the specifications of the client. On completion of construction the project will be handed over to the client and final payment and completion certificate is received from the client for the completed project.
  • Upcoming PMC Projects Specialists in discovering Multibagger stocks NBCC has vast experience in managing PMC projects and has done about 43 projects in April 1,2006 to January 31,2012 and has about 78 PMC contracts which are outstanding. NBCC execution time frame for PMC projects ranges from 24-36 months and currently has Rs.935 Cr ofPMC orders executable in FY14 which provides revenue visibility for the company. Project Location Client Contract Value (Rs.Mn) Centre for Rural Development Jaipur Jaipur MORD 2443 Development works at campus Sriperumbudur Rajiv Gandhi National Institute of Youth Development 1800 Const of 500 bedded Hospital Kharsanwa Kharsanwa Swasthya Chikitsa,Shiksha Aur Parivar,Kalyan Vibhag,Ranchi 1428.8 Police Academy work at Male Maldives MEA 1390 Const of 500 Bedded Sadar Hospital Dumka Govt of Jharkhand 1360 Const of 100 bedded ESI Hospital Ankleswar ESIC 920
  • Order Book Break-Up Specialists in discovering Multibagger stocks PMC business is the main stay of the company with about 90% of revenues being generated from PMC projects and almost 78% EBIDTA from PMC. NBCC has over the years, leveraged its PMC expertise in diverse segments of the civil construction such as residential and commercial complexes, institutions, hospitals and other buildings, sewage treatment plants, roads; and civil infrastructure for power sector such as cooling towers, chimneys and other civil and structural works. NBCCs Order Book of the PMC projects comprises of about 38% - institution segment, 44% - infrastructure segment, 14% - commercial construction and 3% - residential construction.
  • Real Estate Development Cycle Specialists in discovering Multibagger stocks Land is identified, evaluated and acquired either from the government or private owners or through joint venture arrangements. NBCC existing land bank is a mix of land acquired (either owned or through long leases from the government on a nomination basis or through competitive Bidding process or auction or private owners or through joint venture arrangements. In order to acquire land, we enter into a sale deeds or a perpetual lease deeds and get the property registered in our name. For the projects to be undertaken through joint ventures NBCC enters into a joint venture agreement with the land owner. NBCC outsource the construction of projects to a number of contractors for different aspects of the project, while retaining a project management role. On completion of the project the company receives occupation certificate and transfer the title or lease hold rights to the customer as the case may be.
  • Upcoming Real Estate Projects Specialists in discovering Multibagger stocks NBCC develops a wide range of residential projects from apartments to townships. They are developed as a township with facilities such as gated security, swimming pools, community halls, post construction maintenance. NBCC generates revenues on residential projects through sale of residential units. NBCC develops a number of commercial projects such as corporate office buildings and shopping malls. NBCC generates revenues from commercial projects through sale and lease of those projects. Project Project Type NBCC Tower, Khekra Phase-II(UP) Residential NBCC Tower, Khekra Phase-III(UP) Residential Regency Tower, Patna(Bihar) Residential Valley View Apartment,Cochin(Kerela) Residential Residential Complex, Alwar,Phase-II-(Rajasthan) Residential Residential Complex, Alwar,Phase-II-(Rajasthan) Residential Residential Complex, Alwar,Phase-III-(Rajasthan) Residential Residential Complex, Meerut,Phase-I(UP) Residential Residential Complex, Meerut,Phase-II(UP) Residential Residential Complex, Saharanpur (UP) Residential Commercial Complex, Faridabad (Haryana) Commercial Commercial Complex, Khekra (UP) Commercial Commercial Complex, Action Area III, Rajarhat, Kolkata (West Bengal) Commercial Commercial Complex, Lucknow (UP) Commercial Commercial Complex, ITP, Ahemdabad (Gujarat) Commercial Commercial Complex, Multi-Media Centre, Kolkata (WB) Commercial Additional Block, Pushp Vihar, Delhi Commercial Commercial Complex, Ghaziabad (UP) Commercial Commercial Complex, Bhubaneshwar (Orissa) Commercial
  • Rising Share of Real Estate Projects Specialists in discovering Multibagger stocks NBCC has a number of projects that are ongoing and have good number of projects in pipeline which indicates the traction in the real estate projects undertaken by the company. NBCC has a total of about 81.79 Lakh (Sq.ft) of developable area in its forthcoming projects out of which 10 projects are in residential category while the remaining 8 are commercial projects. Type of Real Estate Development Completed Projects Ongoing Projects Forthcoming Projects Particulars No. of Projects Develop able Area No. of Projects Developable Area (sft.) Saleable Area(sft.) Leasable Area(sft.) No. of Projects Developable Area(sft.) Saleable Area(sft.) Leasable Area(sft.) Residential 1 11,48,58 6 5 44,73,855 34,47,338 2,89,109 10 49,34,839.485 49,48,184.1 - Commercial 11 17,29,37 9 - - - - 8 32,44,262.1 28,73,322.6 27,70,850 Total 12 28,77,96 5 5 44,73,855 34,47,338 2,89,109 18 81,79,101.585 78,21,506.7 27,70,850
  • Re-Development Projects to drive future growth Specialists in discovering Multibagger stocks NBCC has received a letter of intent by the ministry of urban development for re-deployment of old government colony at Kidwai nagar (East), New Delhi. The project entails development and construction of Type II to Type VII General Pool Residential Accommodation (GPRA) and involves the construction of 4747 dwelling units and construction of commercial spaces 104413 SQM (FAR) over a period of 5 years at an estimated cost of Rs 4264 Cr. The entire cost of the project will be recouped on self- sustaining basis utilizing land as a resource and raising funds for the project through sale of commercial space up to 10% of FAR and 10% of built up residential area for a period of 30 years to the Government Departments, ministries and PSUs on lease hold basis. Initial investment of Rs.200 Cr shall yield 15% IRR for the company. NBCC has been further assigned areas such as Netaji Nagar, Kasturba Nagar and Thyagaraj Nagar in New Delhi which is to the tune of Rs.5000 Cr each which provides huge growth potential. There is potential to develop projects in 30 such areas going forward.
  • Power Sector Projects Specialists in discovering Multibagger stocks NBCC prospective clients typically advertise potential projects in national newspapers or on their websites. NBCC evaluates and makes a market assessment, based on which it submits its Bids/tenders. Client evaluates the tenders submitted by various Bidders and issues a Letter of Intent to the successful Bidder. NBCC invite tenders from subcontractors and based on the technical and financial criteria met by them, they are selected and the said work. NBCC monitors the project to verify whether the project meets the specifications of the client. On completion the project will be handed over to the client and final payment and completion certificate is received from the client for the completed project.
  • NBCC Ltd Investment Arguments Specialists in discovering Multibagger stocks
  • Strong Order Book Specialists in discovering Multibagger stocks NBCC has strong order book of about Rs.12,163 Cr which is about 3.82x its FY13 revenues which provides revenue visibility for the company. NBCC s order book has been rising consistently from about Rs.4233 Cr in FY08 to about Rs.12,163 Cr in FY13 growing at a CAGR of 23.50%. NBCC order book growth is set to continue and we estimate closing order book of Rs.12,771 Cr and Rs.13,410 Cr in FY14 and FY15 respectively. Historically NBCC has executed about 30-40% of its order book we estimate it to be about 25% in FY14 and FY15. Historic Order Book(Rs. Cr) Year Closing Order Book Sales Order Book to Sales Sales to Order Book Execution(In %) FY08 4,233 1,969 2.15 47 FY09 6,986 2,041 3.42 29 FY10 7,729 2,982 2.59 39 FY11 7,658 3,146 2.43 41 FY12 8,162 3,448 2.37 42 FY13 12,163 3187 3.82 26 FY14E 12,771 3649 3.50 25 FY15E 13,410 4126 3.25 25
  • Preferred Government Contractor Specialists in discovering Multibagger stocks NBCC has been the preferred government contractor for various projects ranging from PMC to redevelopment of old colonies. Apart from that the government is also contemplating to use the services of NBCC for speeding up Infrastructure projects in the states. NBCC is likely to receive road projects worth Rs.350 Cr from Orissa state to speed up the road infrastructure in the state which has been showing a slow progress. In Naxal hit states there are no takers for road projects and MOUD is looking to seek the help of CPWD and NBCC which will give a Philip to its road infrastructure projects. NBCC has signed an MOU with CPWD to develop 250 acres of their land in Ghitorni.NBCC will develop about 2 crore Sq.ft commercially exploitable residential and commercial area and the sale and construction of the area will be done by NBCC.
  • Asset Light Business Model Specialists in discovering Multibagger stocks NBCC has an asset light business model which is the lowest in the industry on account of its unique positioning in the sector. NBCC Capex to sales has historically been around 0.75% and this will continue in the medium term as major revenues are from the PMC segment. NBCC has also benefitted by its real estate revenues from government contracts in the PPP mode which has resulted in the company not requiring to pay upfront for land. As majority of its real estate revenues are from government contracts this has also de-risked its business by getting a guaranteed IRR of 15% without any capex requirements.
  • Negative Working Capital Specialists in discovering Multibagger stocks NBCC has had negative working capital on account of its efficient working capital management compared to its peers struggling with negative cash flows. NBCC has negative working capital due to advances received from customers and retention margin from the contractor. NBCCs advances from customers constitute about 40-50% of their current liabilities. NBCC derives significant other income on account of advances received from customers and retention money which aid its bottom line. Net Working Capital FY12 FY13 FY14E FY15E Inventories 450.06 632.44 649.81 700.87 Trade Receivables 935.67 830.3 899.74 1017.40 Loans and Advances 680.43 543.24760.9781 856.34 Other Current Assets 0.00 0.00 0.00 0.00 Cash & Bank 1325.2 1537.76 1697.18 1925.89 Total Current Assets 3391.36 3543.74 4007.71 4500.50 Short term Borrowings 257.96 266.63 270 270 Trade Payables 0 0 0 0 Current Liabilities & Provisions 2584.82 2512.83 2857.19 3205.95 Total Current Liabilities 2842.78 2779.463127.193 3475.95 Net Working Capital(Excluding Cash) -776.62 -773.48 -816.66 -901.34 Current Liabilities(Rs.Cr) FY11 FY12 FY13 Trade Payables 967 1177 820.5 Other Current Liabilities 1336 1603 1319 Short term Provisions 139.9 88.1 87.3 Total Current Liabilities 2443 2868 2226 Advances from Customers 949.6 880 1196 % of Advances to Total Current Liabilities 38.87 30.68 53.73
  • Focus on high value projects Specialists in discovering Multibagger stocks In PMC segment and civil infrastructure for power projects segment, NBCC intends to focus on undertaking projects having a high order value i.e ,projects above Rs.100 Cr in value. In the PMC segment, NBCC intends to focus on, inter alia, redevelopment projects whereby old buildings, complexes and colonies are redeveloped. Such projects are typically high value projects. Projects having a high order value typically have a smaller percentage of overhead cost as a percentage of total cost and therefore provide a higher profit margin.
  • Financials Specialists in discovering Multibagger stocks
  • Earnings Projection P&L Account NBCCs revenues are expected to grow by 14% and 13% in FY14 & FY15 driven by improved order book and execution. NBCC has EBITDA margins in the range 5-8%.We conservatively estimate EBITDA margins of about 4.9% in FY14 and FY15. NBCC is likely to report PAT of Rs.212.09 Cr in FY14 and Rs.225.72 Cr in FY15 with an EPS of Rs.17.67 and Rs.18.81 in FY14 and FY15 respectively. NBCC interest cost in FY 13 was at Rs.1.28 Cr and is expected to be about Rs.1.09 Cr and Rs.1.24 Cr in FY14 and FY15 respectively. NBCC has a asset light business model which has enabled the company to lower its depreciation. Specialists in discovering Multibagger stocks Particulars FY12 FY13 FY14E FY15E Net Sales 3447.69 3198.48 3648.95 4126.12 % Chg 9.59 -7.23 14.08 13.08 Total Expenditure 3261.16 2925.28 3485.11 3940.86 % Chg 8.07 -10.30 19.14 13.08 EBITDA 186.53 273.2 163.84 185.26 EBITDA Margins(%) 5.41 8.54 4.49 4.49 Interest 1.92 1.28 1.09 1.24 Depreciation 1.36 1.35 1.33 1.31 PBT 289.83 301.64 307.37 327.13 PAT 190.17 207.5 212.09 225.72 EPS 15.85 17.29 17.67 18.81
  • Balance Sheet Specialists in discovering Multibagger stocks NBCC investment in Fixed Assets has been stable at Rs.24.33 Cr in FY13 and it is expected to remain at Rs.25.54 Cr and Rs.28.88 Cr in FY14 and FY15 respectively. NBCCs Investments has been steadily increasing on account of its surplus cash generation due to efficient working capital model of the company. NBCC s Reserves and surplus has seen a consistent increase despite the company having a historic dividend Payout ratio of 20-23%. Balance Sheet FY12 FY13 FY14E FY15E Share Capital 120 120 120 120 Reserves & Surplus 675.5 830.7 993.6 1167 Net Worth 795.5 950.7 1114 1287 Total Debt 258 266.6 270 270 Total Liabilities 1053 1217 1384 1557 Fixed Assets 23.31 24.33 25.54 28.88 Investments 223.6 162.1 207.5 233.5 Net Current Assets 806.5 1031 1151 1295 Total Assets 1053 1217 1384 1557
  • Cash Flow Statement Specialists in discovering Multibagger stocks
  • Concerns & Reasoning Specialists in discovering Multibagger stocks 1.) Dependence on Government for Projects : The Companys PMC and Civil Infrastructure for power sector segments are fully dependent on projects awarded by government entities. Accordingly, any change in the governments policy or in budgetary allocations may adversely affect its order book and future business prospects. 2.) Land and Real Estate related Risks : NBCC title and development rights or other interests over land may be subject to legal uncertainties and defects which may have an adverse impact on its ability to develop and market projects developed on such disputed properties. 3.) Excessive dependence on PMC Business : NBCC derived 91%, 93.4 % and 90.9 % of total income for FY 2012 and FY 2011 & 2010, respectively from its PMC segment. Any decline or delay in this segment might have an adverse impact on the future business prospect s and the financial condition. 4.) Venture into overseas Markets : NBCC has also ventured into overseas markets where the expertise and domain knowledge are entirely different. Further, any change in government policy may adversely impact the companys revenues and profitability.
  • Price Chart NBCC had been less volatile during the past 1 year and had hit a high of Rs.194.6 before correcting due to technical reasons. The Stock has exhibited less volatility considering the low liquidity in the stock. Technically the stock has strong support at Rs.112 thereby providing limited downside risk. Specialists in discovering Multibagger stocks Share Holding % Sep Jun Mar Dec 2013 2013 2013 2012 Promoters 90.00 90.00 90.00 90.00 FII 0.67 0.62 0.64 0.64 DII 2.09 2.19 1.81 2.25 Others 7.24 7.19 7.55 7.11
  • Conclusion We believe that NBCC is Graham kind of Cash Bargain within the space of decent Quality businesses. These king of Cash Bargains hardly occur in Indian Markets and even when they are present, it is usually in low quality businesses which eventually turn out to be Value Traps. We certainly believe that NBCC is one of the high quality Cash bargains available in a Highly polarized market with a deep disdain for PSU stocks. While we continue to emphasize the importance of Quality Business over Cheap Stocks as seen in many of our recommendations, we believe that once in a while engagement with statistically cheap stocks is not bad, if capital allocation in these Ideas are within limits. Being a Multi-Dimensional Investor is extremely important and one of Warren Buffets biggest reasons for success and differentiation from other Value Investors has been his Multi-Dimensional approach which includes several types from Moat based Investing to Float based Investing to Cheap Stocks to Arbitrage positions. In that sense - we believe that the stock pick of NBCC certainly deserves to be on the radar as, the positives in terms of good business model, strong financials, ethical management, High Return business. Decent capital allocation skills, growth visibility etc far outweighs the negatives like uncertainty in government policy and Capital Allocation track record of PSUs. We believe that the stock at the current price of 130 Rs/ Share factors in most of the uncertainties and can positively surprise the Market with its strong growth. Triggers can be manifold from Real Estate profits to Optimism on PSUs post election. The triggers for a strong Re-Rating when combined with the inherent growth in Earnings can provide strong Multibagger returns for an Investor with a 3-5 year time frame. Specialists in discovering Multibagger stocks
  • THANK YOU Specialists in discovering Multibagger stocks