may 27, 2015 nbcc ltd (nbcc) - icici...

May 27, 2015

Result Update

ICICI Securities Ltd | Retail Equity Research

Fund raising to explore massive opportunities • Revenues grew 23.2% YoY to | 1780.3 crore (vs. our estimate: |

1645.2 crore). While PMC division revenues were up 20.6% YoY to | 1420.1 crore, real estate revenues were at | 270.7 crore (+20.3% YoY)

• The EBITDA margin expanded 166 bps YoY to 8.8% (vs. our estimate of 7.7%) mainly due to 9.3% EBIT margin in the PMC division and 19.0% EBIT margin in the real estate division

• PAT grew 25.3% YoY to | 134.0 crore (vs. our estimate of | 110.4 crore) mainly due to a strong topline as well as margin show

Big set of opportunities in pipeline… As on March 31, 2015 NBCC’s order book has reached ~| 20,000 crore, 4.3x TTM revenues, providing strong revenue visibility, going forward. Out of this, ~| 12,300 crore is of the PMC division, ~| 4,700 crore is of redevelopment project (East Kidwai Nagar) while remaining is of real estate (~| 2,000 crore) and EPC division (| 1,000 crore). Additionally, NBCC recently grabbed new opportunities worth ~| 8,000 crore, out of which ~| 4000 crore is of “East Delhi Hub” project by Delhi Development Authority (DDA) and remaining ~| 4,000 crore from other different projects such as development of four Waqf Board properties, PMGSY road works, construction work of IIT buildings, etc. We highlight that this ~| 8,000 crore has been excluded from current order book. Going ahead, we incorporate order inflow of | 7,000 and | 8,000 in FY16E and FY17E, respectively, for PMC division (excluding redevelopment opportunities). Management more inclined to redevelopment projects… The next leg of opportunities for NBCC lies in redevelopment of old government properties. In FY15, NBCC entered in to an agreement with the Rajasthan government for redevelopment works. On a similar basis, NBCC is in close negotiations with Odisha, West Bengal and Uttar Pradesh governments. Hence, significant opportunities would be arising from this set of arrangements. We would like to highlight that we have now removed Ghitorni project from our order book estimation till further clarity emerges from it. Hence, going ahead, we have incorporated order inflow of | 20,400 crore in FY16E mainly from three redevelopment projects (Netaji Nagar, Kasturba Nagar and Thyagaraj Nagar), DDA project and Waqf development and | 10,000 crore in FY17E from redevelopment works of various state governments. Hence, these opportunities along with orders of PMC division would lead to overall order backlog of ~| 40,000 and ~| 50,000 in FY16E and FY17E, respectively. FPO to fund future expansion… The board has approved the FPO of 10% of the post issue equity share capital for augmenting the company's resources to fund the business development plans, subject to the approval of Government of India. The proceeds would be used as seed money to fund expected redevelopment projects. Long term story intact; maintain BUY… Though the FPO announcement could remain an overhang in the short-term, we remain positive on NBCC’s business model given the huge opportunities in the redevelopment and real estate space and its cash rich balance sheet. Hence, we recommend a BUY on NBCC with an SOTP based target price of | 994 (implying 28.4x FY17 EPS and ~1.0x FY15-17E PEG ratio). We also highlight that our valuation incorporates ~11% anticipated equity dilution from FPO proceeds.

NBCC Ltd (NBCC) | 793 Rating matrix Rating : BuyTarget : | 994Target Period : 12 monthsPotential Upside : 25%

What’s changed?

Target Changed from | 1003 to | 994EPS FY16E Changed from | 31.0 to | 26.2EPS FY17E Changed from | 45.9 to | 35.0Rating Unchanged

Quarterly performance

Q4FY15 Q4FY14 YoY (%) Q3FY15 QoQ (%)Revenue 1,780.3 1,445.2 23.2 1,101.8 61.6EBITDA 156.8 103.3 51.7 48.2 225.4EBITDA (%) 8.8 7.1 166 bps 4.4 443 bpsPAT 134.0 106.9 25.3 50.8 163.7 Key financials

| Crore FY14 FY15E FY16E FY17ENet Sales 4,008.8 4,621.0 5,748.2 8,011.6 EBITDA 224.0 287.0 400.8 615.6 Net Profit 247.2 277.3 350.0 467.2 EPS (|) 18.5 20.8 26.2 35.0

Valuation summary

(x) FY14 FY15E FY16E FY17EP/E 42.8 38.1 30.2 22.6 Target P/E 53.6 47.8 37.9 28.4 EV / EBITDA 41.9 33.2 23.2 15.8 P/BV 9.4 8.0 4.1 3.6 RoNW (%) 22.1 21.0 13.6 16.1 RoCE (%) 19.9 21.6 15.5 21.1

Stock data Particular AmountMarket Capitalization | 10573.3 CroreTotal Debt | 0 CroreCash | 1054.2 CroreEV | 9519.2 Crore52 week H/L (|) 1087 / 277Equity capital | 133.3 CroreFace value | 10 Price performance

Return (%) 1M 3M 6M 12MNBCC (6.0) 0.4 4.4 181.5 Simplex Infra (11.7) (6.1) 11.7 69.3 NCC (13.1) 8.6 33.8 78.9

Research Analyst

Deepak Purswani, CFA deepak,[email protected]

Nikunj Gala [email protected]


Variance analysis

Q4FY15 Q4FY15E Q4FY14 YoY(%) Q3FY15 QoQ(%) CommentsNet Sales 1,780.3 1,645.2 1,445.2 23.2 1,101.8 61.6 Revenue growth of 23.2% YoY to | 1780.3 crore on the back

of 20.6% YoY growth to | 1420.1 crore in the PMC division

Other Income 35.3 22.0 35.8 -1.2 22.0 60.3

Material Consumed 107.8 74.9 168.8 -36.1 13.4 702.3Changes in Inventories of WIP 62.6 20.7 13.3 369.9 13.9 349.1Expenditure in Piece rate Work 1,408.5 1,382.2 1,129.7 24.7 969.7 45.2Employee Benefit Expenses 47.0 73.6 34.9 34.7 49.6 -5.1Other Expenses 23.7 39.9 16.1 46.9 26.9 -11.9

EBITDA 156.8 126.3 103.3 51.7 48.2 225.4EBITDA Margin (%) 8.8 7.7 7.1 166 bps 4.4 443 bps Margins expanded 166 bps on the back of higher-than-

expected EBIT margins in PMC and real estate division

Depreciation 0.5 1.1 0.3 48.6 0.5 -10.5Interest 0.0 0.0 19.0 NM 0.0 NMPBT 191.6 147.3 119.8 60.0 69.7 175.0Taxes 57.7 36.8 12.9 348.4 18.9 205.1PAT 134.0 110.4 106.9 25.3 50.8 163.7 PAT grew 25.3% YoY to | 134 crore mainly due to strong

topline and margin show

Source: Company, ICICIdirect.com Research

Change in estimates

Particulars 0Old New % Change Old New % Change 0 Comments

Revenue 5,723.8 5,748.2 0.4 8,305.9 8,011.6 -3.5 Revision in order inflow led to a change in revenue estimatesEBITDA 360.6 400.8 11.1 590.1 615.6 4.3EBITDA Margin % 6.3 7.0 67 bps 7.1 7.7 58 bpsPAT 371.4 350.0 -5.8 551.1 467.2 -15.2EPS 31.0 26.2 -15.2 45.9 35.0 -23.7 We have now incorporated expected equity dilution in FY16E

FY16E FY17E


Assumptions for PMC division

Comments| crore FY16E FY17E FY16E FY17EOrder inflow 27,398 18,050 20,000 11,000

Order Backlog 39,424 50,314 40,430 73,756

Average Execution 17.9% 16.3% 15.4% 18.0%

Current Earlier

Incorporated three redevelopment colonies, namely, Kasturba nagar,

Netaji nagar and Thyagraj Nagar along with DDA project and Waqf

development in FY16E order inflow. Moreover, the re-development orders

from various state government has been incorporated in FY17E



Company Analysis Strong order book and consistent order inflow…

NBCC’s order book has grown at 28.7% CAGR in FY04-14. The order book as on Q4FY15 is at ~| 20,000 crore i.e. 4.3x order book to bill ratio, providing strong revenue visibility over the next couple of years. The current order book comprises the PMC business ~ | 16500 crore, EPC business ~ | 1000 crore and Real Estate business of ~ | 2000 crore. Also, in the same period FY04-14, order inflows have grown at ~26% CAGR.

Going forward, the management has guided that order inflows will increase substantially primarily due to opportunities arising from redevelopment of old colonies in New Delhi. Therefore, we expect order acquisition and execution to remain healthy. We have built in 72% CAGR in the order book during FY15-17E.

Exhibit 2: Strong order book, consistent order inflow…

1205.4 1768.1 2691.7 3430.1 4233.3 6985.6 7728.8 7657.8 8162.212163.2

15427.017000.0

39424.0

50314.0

1.82.3 2.2 2.3 2.1

3.42.6 2.4 2.4

3.8 3.8

6.3

3.6

6.9

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

(| c

rore

)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

(x)

Order Book Order Book to Bill ratio


PMC…economic moat for NBCC!!!

Project management consultancy (PMC), which accounted for ~83% of total revenues in FY15, is the cash cow business for NBCC. Its PWO status helps in getting contract on nomination basis. As a result, NBCC gets 70-80% contract on a nomination basis from various ministries. In Q4FY15, PMC division grew 20.6% YoY to | 1420.1 crore with EBIT margin of 9.3%.

Exhibit 3: Revenue contribution from PMC division

1445

.2

834.

5

904.

4

1101

.8

1780

.3

1177

.5

744.

1

778.

5

974.

4

1420

.1

81.589.2 86.1 88.4

79.8

0.0

500.0

1000.0

1500.0

2000.0

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

(| c

rore

)

0.0

20.0

40.0

60.0

80.0

100.0

(%)

Total Revenue Revenue from PMC % Contribution of PMC

Source: Company, ICICIdirect.com, Research

Exhibit 4: EBIT and EBIT margin from PMC division

129.

5

46.6

41.7

48.9

132.

1

11.0

6.35.4 5.0

9.3

0.0

50.0

100.0

150.0


(| c

rore

)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

(%)

EBIT from PMC EBIT Margin of PMC

Source: Company, ICICIdirect.com, Research


Working capital & cash flows - best in industry…

NBCC has a unique advantage of generating cost-free float from its PMC division where it is able to get revenue upfront from clients. On the other hand, it gets an extended credit period from contractors. Consequently, this has led to a negative working capital cycle and healthy CFO and FCFF over the years. It is one of the biggest economic moats of NBCC as compared to its peers in the industry. In FY14, NBCC enhanced its land bank to expand its real estate business. This led to an increase in the inventory, in turn, leading to a higher working capital and lower CFO as compared to those in the previous year. Hence, it earns from both operations as well as float.

Exhibit 5: Robust working capital management

Working Capital Requirement

-178.7

-346.9

-500.9 -550.8-607.2 -613.9

-678.0 -717.7

-891.3-820.6

-272.1

17.3

-429.8 -427.7

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

200.0

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

(| c

rore

)


Exhibit 6: Major components of WC

632.

4

996.

7

1145

.7 1975

.5

830.

3

1316

.4

1704

.1

1968

.6

2743

.7

2633

.7

2919

.6

3279

.1

4376

.0

5829

.31417

.4

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

FY13 FY14 FY15 FY16E FY17E

(| c

rore

)

Inventory Debtors Creditors[


Exhibit 7: OCF & FCF remain healthy except FY14

838.

3

835.

3

121.

5

-365

.4

34.0

514.

9

119.

2 -364

.9

27.9

510.

9-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0

1000.0

FY13 FY14 FY15 FY16E FY17E

(| c

rore

)

CFO FCFF

-ve due to increase in land inventory


Opportunities galore…growth drivers for PMC…

Redevelopment projects…new thrust on growth

While the PMC division can get projects from diverse sectors and grow at a steady rate on the back of a macroeconomic revival, the next big opportunity lies in redevelopment of old government properties.

Recently, the government started focusing on redevelopment of ramshackle buildings and old government colonies in Delhi and across India to build multi-storeyed residential and commercial complexes. In FY15, NBCC had entered into an agreement with the Rajasthan government for redevelopment works. On a similar basis, NBCC is in close negotiations with Odisha government and also with Uttar Pradesh and West Bengal governments for other redevelopment projects.

Re-development of Netaji Nagar | 5,000 croreRe-development of Kasturba Nagar | 5,000 croreRe-development of Thyagaraj Nagar | 5,000 croreGreenfield project in Ghitorni | 15,000 croreRe-development on land owned by Sick PSU | 1,000 croreModernization of printing press across India

| 1,000 crore

Source: Company, Press Reports, ICICIdirect.com Research

Visible opportunities


The successful execution of the New Moti Bagh project and PWO status for NBCC has opened up a huge opportunity in other government/PSU properties. Currently, NBCC is implementing similar redevelopment projects of a government colony in East Kidwai Nagar, Delhi. It is the first of 30 government colonies across Delhi spread over 1100 hectares of prime real estate. Also NBCC has received the go-ahead from the MoUD to redevelop three colonies viz., Netaji Nagar, Kasturba Nagar and Thyagaraj Nagar in the heart of South Delhi spread over ~ 185 acres at an estimated project cost of ~ | 15,000 crore.

Opportunities from various government schemes…

NBCC has been executing many landmark projects as a PMC as its core strength leveraging its rich experience in diverse sectors. The company has also been designated as the implementing agency for executing projects under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Pradhan Mantri Gram Sadak Yojna (PMGSY), solid waste management (SWM) and developmental work in the North Eastern Region. NBCC has signed an agreement with the state government of Punjab wherein it will build 18 de-addiction centres at an initial cost of | 100 crore using prefab technology.

Also, the company is in the process of sending a Cabinet note for redevelopment of 18 government presses across India wherein presses will be modernised and the rest of the land will be used for commercial exploitation. Recently, in the state budget speech, the Rajasthan chief minister announced the formation of a JV with NBCC to execute various redevelopment works and construction projects in Rajasthan.

Real estate… value additive business…

We also like NBCC’s strategy to invest part of its surplus cash flow into the value enhancing real estate business in a disciplined manner and keep its balance sheet debt free. Currently, NBCC has accumulated 170 acres of land reserves spread across 12 states in India. Going ahead, it is looking to plough back 50% of its annual profit in the land to explore opportunities in the real estate division and looking to raise its contribution to 20-25% over the next three to five years from 15-16% currently. Hence, revenue from the real estate business has grown at ~39% CAGR to | 496.8 crore during FY12-15. Also, its contribution to overall revenue has reached 11%. The management envisages greater than 25% contribution from the real estate division to overall revenue in the next couple of years, which would lead to higher operating margins.

Exhibit 8: Revenue contribution from real estate division

1445

.2

834.

5

904.

4

1101

.8

1780

.3

225.

0

63.4

94.9

67.9 27

0.7

15.6

7.610.5

6.2

15.2

0.0

500.0

1000.0

1500.0

2000.0


(| c

rore

)

0.0

5.0

10.0

15.0

20.0

25.0

(%)

Total Revenue Revenue from Real Estate% Contribution of Real Estate


Exhibit 9: EBIT and EBIT margin from real estate division

15.8

15.1

30.9

10.2

51.4

7.0

23.8

32.6

15.119.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0


(| c

rore

)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(%)

EBIT from Real Estate EBIT Margin of Real Estate


Capital employed (| crore) FY13 FY14 FY15

PMC -611.9 -355.6 -419.2

Real Estate 633.0 849.2 1071.7

EPC 75.4 80.9 120.8

Unallocated 854.2 552.8 565.0

Total 950.7 1127.3 1338.4


EPC…well poised to take on new opportunities in infrastructure sector…

NBCC was incorporated as a pure EPC player wherein it has been executing engineering and construction services for projects such as chimneys, cooling towers and various types of power plant works. However, growth has remained subdued in the last few years. Currently, only 5% of the revenue is contributed by the EPC business. Going ahead, the government’s priority to boost infrastructure will create opportunities for the construction industry. NBCC is well poised to grab this opportunity.

Exhibit 10: Revenue contribution from EPC division

1445

.2

834.

5

904.

4

1101

.8

1780

.3

42.7

27.0

31.0

59.6

89.5

1.2

3.0 3.2 3.4

5.4

0.0

500.0

1000.0

1500.0

2000.0


(| c

rore

)

0.01.02.03.04.05.06.07.08.0

(%)

Total Revenue Revenue from EPC % Contribution of EPC


Exhibit 11: EBIT and EBIT margin from EPC division

2.2

4.1

5.1

10.6

16.8

5.2

15.216.5

17.7 18.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15(|

cro

re)

0.0

5.0

10.0

15.0

20.0

(%)

EBIT from EPC EBIT Margin of EPC


Navratna status opens up new set of opportunities…

NBCC became the fifteenth Navratna Company on June 23, 2014 among 250 PSUs in India. Navratna status gives the company freedom to forge tie-ups in the international market and also allows its autonomy on investment decision up to | 1000 crore. The government is considering a proposal to hive off real estate owned by sick PSUs such as Bengal Chemicals, National Bicycle Corporation and Richardson & Cruddas in Mumbai's Worli, Byculla, etc. to NBCC. NBCC will be using the direct sale of land or JV for the development of real estate. This is expected to pave the way for long-term opportunities for NBCC in the real estate segment.

The company is also looking at strategic alliances with domestic and international players in West Asia, Europe and Commonwealth of Independent States (CIS) countries to scout for EPC contracts as the acquisition route would be time consuming. NBCC has already signed a JV with Oman based Al Naba Construction LLC for EPC contracts in Oman and the UAE. Also, it is looking at similar opportunities in political stable geographies like Turkey and CIS countries.

Navratna status gives the company freedom to forge tie-ups in the international market and also allows it autonomy on investment decisions up to | 1000 crore. Currently, only 1-2% of the total revenue is contributed by international projects. Going ahead, the management is expecting the contribution to go up to 10-12%.


Revenues to grow at CAGR of 31.1% during FY15-17E…

NBCC has achieved its target revenue of | 4,200 crore, PAT margin of 5.6% and order inflow of | 5,000 crore in FY15 as per the MoU signed with Government of India. By looking at NBCC’s past track record and current position, we believe it will over achieve the expected MoU target in FY16E and FY17E. Considering the current order book and its ongoing projects, we expect revenues to witness robust growth at 31.1% CAGR to | 8011.6 crore in FY15-17E. Exhibit 12: Revenue growth momentum to continue…

2982.0 3126.8 3447.7 3198.54039.8

4662.1

5748.2

8011.6

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0

9000.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

CAGR -31.1%


EBITDA to grow at 46.4% CAGR during FY15-17E…

We expect revenues from the high margin real estate business to increase substantially during FY15-17E. Also, the company’s strategy to focus on high value projects in the PMC division will further boost EBITDA margins as they have lower percentage of overhead cost. Hence, these will lead to an overall EBITDA margin expansion by 150 bps to 7.7% in FY17E. Consequently, EBITDA is expected to grow at 46.4% CAGR to | 615 crore during FY15-17E. Exhibit 13: EBITDA and EBITDA margin trend

95.5

113.

2

151.

0

159.

3

224.

0

287.

0

400.

8

615.

6

3.23.6

4.45.0

6.27.0

7.7

5.5

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0


(| c

rore

)

0.0

2.0

4.0

6.0

8.0

10.0

EBITDA EBITDA Margin

CAGR - 46.4%


We expect revenue to witness robust growth of 31.1%

CAGR to | 8011.6 crore during FY15-17E

We expect an EBITDA margin expansion by 150 bps to

7.7% in FY17E. Consequently, EBITDA is expected to grow

at 46.4% CAGR to | 615 crore during FY15-17E


PAT to grow at 29.8% CAGR during FY15-17E…

NBCC’s bottomline has grown at 19.0% CAGR during FY10-15 largely led by its robust topline growth and zero interest expenses. We envisage PAT will post healthy growth at 29.8% CAGR during FY15-17E to | 467.2 crore aided mainly by the strong topline performance.

Exhibit 14: PAT growth trend

116.

5

140.

3

190.

2

207.

5

247.

2

277.

3

350.

0

467.

2

3.94.5

5.5

6.56.1 6.1 5.85.9

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0


(| c

rore

)

0.0

2.0

4.0

6.0

8.0

PAT PAT Margin

CAGR - 29.8%


Consistent dividend payer….

NBCC pays out ~20-25% of its earnings as dividends to investors as reinvestment requirements are small given the asset-light nature of the business. At the current market price, the dividend yield for FY15 (dividend of | 5.5/share) was 0.7%. According to the letter bearing reference no: DO No. 3(4)-B(S)/2007 dated October 5, 2007 issued by the Department of Economic Affairs, Ministry of Finance, GoI, all profit making public sector enterprises with a majority holding of GoI are required to declare a minimum dividend on equity of 20% or a minimum dividend payout of 20% of post tax profits, whichever is higher.

Exhibit 15: Dividend payout track record…

23.4 23.325.7 25.2

29.8 29.8 29.831.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


(%)


We envisage PAT will post healthy growth of 29.8% CAGR

during FY15-17E to | 467.2 crore aided mainly by the

strong topline performance

NBCC pays out ~20-25% of its earnings as dividends to

investors. We expect a similar payout ratio, going ahead


Healthy return ratios…

The average RoE and RoCE of NBCC during FY10-15 have remained at the level of 22.1% and 18.2%, respectively, on the back of a strong bottomline show. Going forward, we expect asset turnover to remain at the same level as that of FY15. However, we would like to highlight that we have incorporated equity dilution by | 1000 crore at | 750 per share in FY16E. Hence, we expect RoE and RoCE to decline in FY16E. Nonetheless, we expect RoE and RoCE to bounce back from FY17E onwards on account of expected bottomline growth. Exhibit 16: RoE and RoCE (%) trend

21.3 21.5

23.921.8 21.9

20.9

13.6

16.1

16.9 16.818.3

16.7

19.921.6

15.5

21.1

12.0

15.0

18.0

21.0

24.0

27.0

30.0


(%)

RoE RoCE


Exhibit 17: PAT margin to drive future RoE…

5.5 4.8 4.43.4 3.7 3.6

2.3 2.81.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

3.94.5

5.56.5 6.1 5.9 6.1 5.8

0.0

3.0

6.0

9.0

12.0

15.0

18.0


(x)

0.0

2.0

4.0

6.0

8.0

(%)

PAT Margin (PAT/Sales) Leverage (Asset/Equity) Asset Turnover (Sales/Asset)



Outlook and Valuation At the CMP, the stock is trading at 22.6x FY17E P/E and 3.6x FY17E P/BV. Given the healthy order book in the PMC division and cash rich balance sheet, NBCC’s revenues have grown at a CAGR of 10.6% during FY12-FY15 despite the challenges being encountered by the industry. Going ahead, we expect NBCC’s next leg of growth to come from redevelopment of government properties in Delhi. Hence, we anticipate NBCC’s revenues and net profit will grow at a sturdy CAGR of 31.1% and 29.8%, respectively, during FY15-17E. We also like NBCC due to its cash rich balance sheet and healthy return ratio profile.

We have valued NBCC’s PMC business & redevelopment business on the DCF based methodology to capture the long term opportunities in each business. We have considered cost of equity of 12.6% for the PMC business and 14% for the redevelopment space. We have also rolled over our valuation to FY17E and considered a terminal growth rate of 4% for both businesses. Based on these assumptions, we have valued NBCC’s PMC business at | 325/share & redevelopment opportunities at | 573/share. The real estate business has been valued at | 79/share (at 1x current P/BV) while the EPC business has been valued at | 16.5/share (5x FY17EV/EBIT). Overall, we ascribe target price of | 842/share for NBCC based on SOTP methodology.

Though, FPO announcement could remain a overhang in short term, we remain positive on NBCC business model given the huge opportunities in the redevelopment and real estate space and its cash rich balance sheet. Hence, we recommend a BUY on NBCC with an SOTP based target price of | 1,003 (implying 28.4x FY17 EPS and ~1.0x PEG ratio). We also highlight that our valuation incorporates ~11% anticipated equity dilution from FPO proceeds.

Exhibit 18: SoTP valuation summary SOTP valuation Equity Value (| crore) | per share Comments

PMC Business 4326 325 DCF based valuation

Re-development Opportunity 7640 573 DCF based valuation

Real Estate Business 1057 79 at 1x FY15 P/BV

EPC 220 16.5 at 5x FY17E EV/EBIT

Total 13243 994



Exhibit 19: One year forward P/E

0

200

400

600

800

1,000

1,200

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Oct-1

4

Jan-

15

Apr-1

5

Pric

e (|

)Price 12x 16x 20x 24x 28x

Source: Bloomberg, ICICIdirect.com Research

Exhibit 20: One year forward P/BV

0

200

400

600

800

1,000

1,200

1,400

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Oct-1

4

Jan-

15

Apr-1

5

Pric

e (|

)

Price 2x 4x 6x 8x 10x


Exhibit 21: One year forward EV/EBITDA

-500

1,500

3,500

5,500

7,500

9,500

11,500

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Oct-1

4

Jan-

15

Apr-1

5

EV (|

Cr)

EV 28x 24x 20x 16x 12x


Exhibit 22: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE(| cr) (%) (|) (%) (x) (x) (%) (%)

FY14 4008.8 25.8 18.5 19.1 42.8 41.9 22.1 19.9FY15E 4621.0 15.3 20.8 12.2 38.1 33.2 21.0 21.6FY16E 5748.2 24.4 26.2 26.2 30.2 23.2 13.6 15.5FY17E 8011.6 39.4 35.0 33.5 22.6 15.8 16.1 21.1

[



Company snapshot

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

4

Jul-1

4

Oct-1

4

Jan-

15

Apr-1

5

Jul-1

5

Oct-1

5

Jan-

16

Apr-1

6

Target Price | 994

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date EventSep-14 National Waqf Development Corporation (NAWADCO) signs an MoU with NBCC to develop several Waqf properties spread across six lakh acresOct-14 IIT Kanpur awards NBCC project management consultancy work for major construction works for | 338 croreDec-14 Air India signs "non binding" "non exclusive" memorandum of understanding with NBCC for monetising its land parcels.Dec-14 The government provides ~| 500 crore budget for rehabilitation of Kashmiri Pandits. Out of this ~| 400 crore would be spent on building 1000 new apartments

near Srinagar. NBCC has approved the architecture and design of the apartments and will construct the sameJan-15 Labour Ministry prepares a scheme under which affordable housing will be provided to EPFO subscribers. The ministry intends to collaborate with NBCC to create

~3.5 lakh low cost homesJan-15 NBCC entrusted PMGSY works valued at | 1237 crore in certain IAP districts of Odhisha Jan-15 Delhi Development Authority (DDA) awards 75 acres of land in Karkardooma to NBCC for joint development of "East Delhi Hub" project that will be based on transit

oriented development (TOD) norms and Smart City principlesFeb-15 NBCC secures project management and consultancy (PMC) business of | 231.4 crore from Indian Institute of Technology (IIT), RoorkeeMay-15 NBCC secures work order amounting to | 1528.8 crore in April, 2015May-15 NBCC signs MoU with National Waqf Development Corporation (NAWADCO) for the development of four Waqf Board properties as institutional and commercial

projects at an estimated cost of | 398 crore


Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Government of India 31-Mar-15 90.00 108.00 0.002 RCM Asia Pacific Ltd. 31-Dec-14 0.66 0.79 0.093 Norges Bank Investment Management (NBIM) 31-Dec-14 0.30 0.36 0.364 Tata Asset Management Limited 30-Apr-15 0.29 0.35 0.005 L&T Investment Management Limited 31-Mar-15 0.25 0.30 0.076 Capital Investment Trust Corporation 31-Dec-14 0.18 0.21 0.217 HSBC Global Asset Management (India) Private Limited 31-Mar-15 0.13 0.15 0.008 Amundi Hong Kong Limited 31-Dec-14 0.08 0.10 0.049 Kotak Mahindra Asset Management Company Ltd. 31-Mar-15 0.08 0.10 0.1010 Principal PNB Asset Management Company Ltd. 31-Mar-15 0.07 0.09 (0.01)

(in %) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15Promoter 90.00 90.00 90.00 90.00 90.00FII 1.57 1.12 1.98 2.19 2.72DII 0.74 0.90 0.53 0.98 0.93Others 7.69 7.98 7.49 6.83 6.35

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value SharesNorges Bank Investment Management (NBIM) 4.73m 0.36m Reliance Capital Asset Management Ltd. -8.74m -0.93m Capital Investment Trust Corporation 2.78m 0.21m DSP BlackRock Investment Managers Pvt. Ltd. -2.19m -0.57m Kotak Mahindra Asset Management Company Ltd. 1.50m 0.10m HDFC Asset Management Co., Ltd. -0.63m -0.34m RCM Asia Pacific Ltd. 1.17m 0.09m PineBridge Investments (Taiwan) -0.15m -0.04m L&T Investment Management Limited 1.02m 0.07m Principal PNB Asset Management Company Ltd. -0.09m -0.01m

Buys Sells


Financial summary Profit and loss statement | Crore

(| Crore) FY14 FY15E FY16E FY17ENet Sales 4,008.8 4,621.0 5,748.2 8,011.6Other Operating Income 31.0 41.1 0.0 0.0Other Income 133.3 146.6 129.7 94.1Total Revenue 4,173.0 4,808.7 5,877.9 8,105.7Raw Material Expenses 425.8 288.9 356.2 496.4Employee Expenses 182.1 195.1 234.2 281.0Expenditure in Piece rate Work / Consult 3,153.2 3,834.8 4,728.2 6,590.0Other Expenses 54.7 56.3 28.9 28.6Provisions & Write-offs 0.0 0.0 0.0 0.0EBITDA 224.0 287.0 400.8 615.6Growth (%) 39.8 28.1 39.6 53.6Interest 22.4 40.2 49.4 67.8PBDT 334.9 393.4 481.1 641.9Depreciation 1.3 2.3 1.7 1.9PBT 333.5 391.0 479.4 640.0Total Tax 86.4 113.7 129.4 172.8PAT 247.2 277.3 350.0 467.2Growth (%) 19.1 12.2 26.2 33.5EPS (Diluted) 18.5 20.8 26.2 35.0


Cash flow statement | Crore

(| Crore) FY14 FY15E FY16E FY17EProfit after Tax 247.2 277.3 350.0 467.2Add: Depreciation 1.3 2.3 1.7 1.9Add: Interest Paid 22.4 40.2 49.4 67.8Cash Flow before WC changes 270.9 319.9 401.1 536.9Net Increase in Current Assets -921.5 -642.7 -683.1 -1,522.4Net Increase in Current Liabilities 285.2 356.8 1,120.3 1,500.4Net Cash Flow from Operating Activities -365.4 34.0 838.3 514.9Inc/ (Dec) in Deferred Tax Liability -13.9 3.8 0.0 0.0(Purchase)/Sale of Fixed Assets 0.5 -6.1 -3.0 -4.0Net Cash flow from Investing Activities 116.6 -49.8 -1,463.8 -770.1Proceeds from issues of Equity Shares 0.0 0.0 13.3 0.0One time adj. in P&L Appropriation 0.0 0.0 0.0 0.0Adj. in General Reserves -0.4 0.0 0.0 0.0Dividend and Dividend Tax Paid -76.9 -79.1 -99.8 -133.2Interest Paid -22.4 -40.2 -49.4 -67.8

Net Cash flow from Financing Activities -99.6 -119.3 850.8 -201.1Net Cash flow -348.4 -135.1 225.4 -456.2Opening Cash / Cash Equivalent 1,537.7 1,189.3 1,054.2 1,279.5Closing Cash / Cash Equivalent 1,189.3 1,054.2 1,279.5 823.3


Balance sheet | Crore

(| Crore) FY14 FY15E FY16E FY17ELiabilitiesEquity Capital 120.0 120.0 133.3 133.3Reserve and Surplus 1,000.6 1,198.8 2,435.7 2,769.6Total Shareholders funds 1,120.6 1,318.8 2,569.0 2,903.0Deferred Tax Liability -23.3 -19.5 -19.5 -19.5Source of Funds 1,097.2 1,299.3 2,549.5 2,883.5AssetsTotal Gross Block 37.5 43.6 46.6 50.6Less: Accumulated Depreciation 15.0 17.3 19.0 20.9Net Block 22.5 26.2 27.5 29.7

Investments 113.5 161.0 1,621.8 2,387.8Other non-current assets 0.0 0.0 0.0 0.0

Inventory 996.7 1,145.7 1,417.4 1,975.5Debtors 1,316.4 1,704.1 1,968.6 2,743.7Loans and Advances 512.2 612.3 759.2 948.4Cash 1,189.3 1,054.2 1,279.5 823.3Other Current Assets 10.2 16.2 16.2 16.2Total Current Assets 4,024.8 4,532.4 5,440.8 6,507.0Creditors 942.0 1,514.0 1,811.1 2,414.5Provisions 144.0 141.2 164.7 211.8Other Current Liabilities 1,977.6 1,765.1 2,564.9 3,414.8Net Current Assets 961.3 1,112.1 900.2 466.0

Application of funds 1,097.2 1,299.3 2,549.5 2,883.5


Key ratios

FY14 FY15E FY16E FY17EPer share data (|)EPS 18.5 20.8 26.2 35.0Cash EPS 18.6 21.0 26.4 35.2BV 84.0 98.9 192.7 217.7Operating profit per share 16.8 21.5 30.1 46.2Cash Per Share 89.2 79.1 96.0 61.7Operating Ratios (%)EBITDA Margin 5.5 6.2 7.0 7.7PBT Margin 8.3 8.4 8.3 8.0PAT Margin 6.1 5.9 6.1 5.8Inventory days 72 91 90 90Debtor days 95 120 135 125Creditor days 94 86 120 115Return Ratios (%)RoE 22.1 21.0 13.6 16.1RoCE 19.9 21.6 15.5 21.1Valuation Ratios (x)P/E 42.8 38.1 30.2 22.6EV / EBITDA 41.9 33.2 23.2 15.8EV / Net Sales 2.3 2.1 1.6 1.2Sales / Equity 3.6 3.5 2.2 2.8Market Cap / Sales 2.6 2.3 1.8 1.3Price to Book Value 9.4 8.0 4.1 3.6Solvency Ratios (x)Current Ratio 1.3 1.3 1.2 1.1Quick Ratio 1.0 1.0 0.9 0.7



ICICIdirect.com coverage universe (Construction)

CMP M Cap(|) TP(|) Rating (| Cr)FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

NCC (NAGCON) 86 88 Hold 5,337 2.0 2.0 3.5 47.7 48.4 27.8 11.0 12.0 9.9 1.7 1.6 1.5 3.5 3.4 5.6NBCC (NBCC) 793 994 Buy 10,573 20.8 26.2 35.0 38.1 30.2 22.6 33.2 23.2 15.8 8.0 4.1 3.6 21.0 13.6 16.1Simplex Infra (SIMCON) 408 463 Buy 2,026 12.7 16.5 30.7 34.6 26.6 14.3 8.3 7.6 6.5 1.5 1.4 1.3 4.4 5.5 9.4Source: Company, ICICIdirect.com Research

P/B (x) RoE (%)Sector / Company

EPS (|) P/E (x) EV/EBITDA (x)


RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


Disclaimer

ANALYST CERTIFICATION We , Deepak Purswani, MBA (Finance), CFA; Nikunj Gala, MBA (Capital Markets) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Deepak Purswani, MBA (Finance), CFA; Nikunj Gala, MBA (Capital Markets) research analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Deepak Purswani, MBA (Finance), CFA; Nikunj Gala, MBA (Capital Markets) research analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

may 27, 2015 nbcc ltd (nbcc) - icici...

Documents