november 13, 2015 nbcc ltd (nbcc) - icici...

November 13, 2015

Result Update

ICICI Securities Ltd | Retail Equity Research

Plethora of opportunities ahead… • NBCC’s topline grew 23.5% YoY to | 1116.6 crore below our estimate

of | 1133.5 crore. While the PMC division revenues grew 15.3% YoY to | 897.7 crore (our expectation: | 994.8), real estate and EPC divisions revenues grew strongly at 71.8% YoY and 80.7% YoY to | 163 crore and | 55.9 crore, respectively

• The EBITDA margin expanded 34 bps YoY to 5.9% well above our estimate of 4.8% mainly due to higher EBIT margin in the PMC division at 7.5% (our expectation: 6.3%) and the real estate division margin at 28.3% (our expectation: 28.5%)

• Bottomline grew 11.9% YoY to | 67.2 crore and was well above our expectation of | 48.3 crore mainly due to higher margin in the PMC division and better performance of the real estate and EPC division

Robust order book providing strong revenue visibility… As on September 30, 2015 NBCC’s order book stands at ~| 30,000 crore, (5.8x TTM revenues) providing strong revenue visibility, going forward. Out of this, ~| 24,000 crore came from the PMC division, ~| 3,500 crore came from a redevelopment project (East Kidwai Nagar) while the remaining was from the real estate (~| 1500 crore) and EPC division (~| 1000 crore). Furthermore, the management expects an order inflow of ~| 10000-15000 crore in FY16E (ex-redevelopment) and order book to be around ~| 40000 crore (ex-redevelopment) by FY16E end. Redevelopment - great opportunity ahead… While the PMC division is witnessing healthy opportunities, the next big opportunity lies in redevelopment of old colonies. NBCC is currently awaiting cabinet nod to redevelop four old colonies in Delhi, which could make a significant contribution of ~| 20000 crore to its order book, going ahead. Furthermore, the management expects to get approvals by March 2016 and plans to start work by December, 2016. Beside this, NBCC is exploring redevelopment opportunities with various state governments.

To benefit from government initiatives GoI recently launched three ambitious schemes Atal Mission for Rejuvenation & Urban Transformation (AMRuT), Housing For All by 2020 and 100 smart cities mission aimed at urban development. NBCC is already implementing a few smart townships like Kidwai Nagar and New Moti Bagh. The company is looking to provide an all-round smart city solution, which would include both construction and technical (IT/electronic) services. Consequently, NBCC has signed a MoU with IBM and a Malaysian JV firm for the same. However, order inflows from these initiatives would take some time to percolate to the order book as these developments are at a nascent stage. Long term story intact; maintain BUY… 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 have a BUY recommendation on NBCC with an SOTP based target price of | 1150 (implying 21.7x FY17 EPS and ~0.7x FY15-17E PEG ratio).

NBCC Ltd (NBCC) | 905 Rating matrix Rating : BuyTarget : | 1150Target Period : 12 monthsPotential Upside : 27%

What’s changed?

Target UnchangedEPS FY16E UnchangedEPS FY17E UnchangedRating Unchanged

Quarterly performance

Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%)Revenue 1,116.6 904.4 23.5 1,147.3 -2.7EBITDA 66.3 50.7 30.9 39.6 67.7EBITDA (%) 5.9 5.6 34 bps 3.4 249 bpsPAT 67.2 60.1 11.9 43.3 55.2 Key financials

| Crore FY14 FY15 FY16E FY17ENet Sales 4,008.8 4,621.0 5,748.2 9,661.6 EBITDA 224.0 287.0 391.4 745.0 Net Profit 247.2 277.3 343.3 555.0 EPS (|) 18.5 20.8 25.7 41.6

Valuation summary

(x) FY14 FY15E FY16E FY17EP/E 48.8 43.5 35.2 21.7 Target P/E 62.0 55.3 44.7 27.6 EV / EBITDA 48.1 37.9 27.1 14.7 P/BV 10.7 9.1 4.7 4.1 RoNW (%) 21.9 20.9 13.4 18.8 RoCE (%) 30.8 32.0 20.1 28.2

Stock data Particular Amount ( | crore)Market Capitalization 12,066.4Total Debt 0.0Cash 1,059.5EV 11,006.952 week H/L (|) 1215 / 683Equity capital 130.0Face value | 10 Price performance

Return % 1M 3M 6M 12M

NCC Ltd (4.7) (18.7) (2.8) 96.5

Simplex Infra (14.5) (18.2) (20.0) 25.1

NBCC 1.2 32.3 40.9 131.3 Research Analyst

Deepak Purswani, CFA deepak,[email protected]


Variance analysis

Q2FY16 Q2FY16E Q2FY15 YoY(%) Q1FY16 QoQ(%) CommentsNet Sales 1,116.6 1,133.5 904.4 23.5 1,147.3 -2.7 Topline grew 23.5% YoY to | 1116.6 crore below our estimate of | 1133.5

crore as the PMC division revenues grew 15.3% YoY to | 897.7 crore (our expectation: | 994.8 crore)

Other Income 31.8 23.6 27.7 14.9 31.2 1.9

Material Consumed 9.6 70.2 15.7 -39.3 22.0 -56.5Changes in Inventories of WIP 58.3 35.3 27.3 113.7 35.8 62.9Expenditure in Piece rate Work 932.5 958.1 755.3 23.5 971.7 -4.0Employee Benefit Expenses 50.3 65.9 49.9 0.9 66.8 -24.7Other Expenses 8.3 13.5 29.0 -71.3 13.7 -39.4

EBITDA 66.3 54.3 50.7 30.9 39.6 67.7EBITDA Margin (%) 5.9 4.8 5.6 34 bps 3.4 249 bps EBITDA margin expanded 34 bps YoY to 5.9% well above our estimate of

4.8% mainly due to higher EBIT margin in the PMC division at 7.5% (our expectation: 6.3%) and the real estate division margin at 28.3% (our expectation: 28.5%)

Depreciation 0.5 0.6 0.6 -23.3 0.6 -24.9Interest 5.3 7.6 0.0 NM 7.6 NMPBT 92.4 69.7 77.7 18.8 62.5 47.7Taxes 25.1 21.4 17.6 42.5 19.2 30.8PAT 67.2 48.3 60.1 11.9 43.3 55.2 PAT grew 11.9% YoY to | 67.2 crore and was well above our expectation of

| 48.3 crore mainly due to higher margin in the PMC division and better performance of the real estate & EPC division

Source: Company, ICICIdirect.com Research

Change in estimates

ParticularsOld New % Change Old New % Change Comments

Revenue 5,748.2 5,748.2 0.0 9,661.6 9,661.6 0.0EBITDA 392.0 391.4 0.1 745.6 745.0 0.1EBITDA Margin 6.8 6.8 0.9bps 7.7 7.7 1.1bpsPAT 343.3 343.3 0.0 555.0 555.0 0.0EPS 25.7 25.7 -0.2 41.6 41.6 -0.1 We maintain our estimates

FY16E FY17E


Assumptions for PMC division

Comments| crore FY16E FY17E FY16E FY17EOrder inflow 32,398 23,200 32,398 23,200 We maintain our assumptionsOrder Backlog 44,424 58,814 44,424 58,814Average Execution 16.5% 17.3% 16.5% 17.3%

Current Earlier



Company Analysis Strong order book, consistent order inflow… NBCC’s order book has grown at 28.7% CAGR in FY04-14. The order book as on Q2FY16 is at ~| 30,000 crore i.e. 5.8x order book to bill ratio, providing strong revenue visibility over the next couple of years. The current order book comprises the PMC business ~| 24000 crore, redevelopment business worth ~| 3500 crore, EPC business ~ | 1000 crore and real estate business of ~| 1500 crore. Also, in the same period of 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 86% 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

44424.0

58814.0

1.82.3 2.2 2.3 2.1

3.42.6 2.4 2.4

3.8 3.8

6.1

3.6

7.7

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

70000.0

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

(| c

rore

)

0.01.02.03.04.05.06.07.08.09.0

(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 Q2FY16, the PMC division grew 15.3% YoY to | 897.7 crore with EBIT margin of 7.5%.

Exhibit 3: Revenue contribution from PMC division

904.

4

1101

.8

1780

.3

1147

.3

1116

.6

778.

5

974.

4

1420

.1

970.

0

897.

7

86.1 88.479.8 84.5 80.4

0.0

500.0

1000.0

1500.0

2000.0

Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16

(| 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, EBIT margin from PMC division

41.7

48.9

132.

1

47.4

67.5

5.4 5.0

9.3

4.9

7.5

0.0

50.0

100.0

150.0


(| c

rore

)

0.0

2.0

4.0

6.0

8.0

10.0

(%)

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 which 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 -426.2

-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 2382

.3

830.

3

1316

.4

1704

.1

1968

.6

3308

.8

2633

.7

2919

.6

3279

.1

4376

.0

6946

.11417

.4

0.01000.02000.03000.04000.05000.06000.07000.08000.0

FY13 FY14 FY15 FY16E FY17E

(| c

rore

)

Inventory Debtors Creditors

[


Exhibit 7: OCF & FCF remain healthy except FY14

697.

5

694.

5

61.7

-438

.1 -153

.9

490.

1

59.5

-437

.9 -160

.7

486.

1-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0

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 to 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 entered into an agreement with the Rajasthan government for re-development works. On 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.

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. In Q2FY16, real estate revenues grew 71.8% YoY to | 163 crore mainly on account of sale of some properties in Okhla and sale of some flats in Bhubaneswar and Patna.

Furthermore, 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

904.

4

1101

.8

1780

.3

1147

.3

1116

.6

94.9

67.9

270.

7

128.

2

163.

0

10.5

6.2

15.2

11.214.6

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

30.9

51.4

10.2 35.5

46.4

32.6

15.1

27.7 28.5

19.0

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 FY15PMC -611.9 -355.6 -419.2Real Estate 633.0 849.2 1071.7EPC 75.4 80.9 120.8Unallocated 854.2 552.8 565.0Total 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, mere 5.3% of the revenues are 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

904.

4

1101

.8

1780

.3

1147

.3

1116

.6

31.0

59.6

89.5

49.1

55.9

3.4

5.4 5.04.3 5.0

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

5.1

10.6 16

.8

1.3

9.7

16.517.7 18.8

2.6

17.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16(|

cro

re)

0.0

5.0

10.0

15.0

20.0

25.0

(%)

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 44% 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 44% CAGR to | 9661.6 crore in FY15-17E. Exhibit 12: Revenue growth momentum to continue…

2982.0 3126.8 3447.7 3198.54039.8

4662.15748.2

9661.6

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

CAGR - 44%


EBITDA to grow at 64.9% 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 are expected to lead to an overall EBITDA margin expansion by 190 bps to 8.1% in FY17E. Consequently, EBITDA is expected to grow at 64.9% CAGR to | 780.3 crore during FY15-17E. Exhibit 13: EBITDA and EBITDA margin trend

95.5

113.

2

151.

0

159.

3

224.

0

287.

0

426.

7

780.

3

3.23.6

4.45.0

6.2

7.48.1

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 - 64.9%


We expect revenue to witness robust growth of 44% CAGR

to | 9661.6 crore during FY15-17E

We expect an EBITDA margin expansion by 190 bps to

8.1% in FY17E. Consequently, EBITDA is expected to grow

at 64.9% CAGR to | 780.3 crore during FY15-17E


PAT to grow at 41.5% 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 41.5% CAGR during FY15-17E to | 555.0 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

343.

3

555.

0

3.94.5

5.5

6.56.1 5.9 6.0

5.7

0.0

100.0

200.0

300.0

400.0

500.0

600.0


(| c

rore

)

0.0

2.0

4.0

6.0

8.0

PAT PAT Margin

CAGR -41.5%


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 pay-out 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 41.5% CAGR

during FY15-17E to | 555.0 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 21.6% and 30.5%, 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 21.9 20.9

13.4

18.8

33.2 33.030.8

32.0

21.822.2

25.4

20.1

28.628.2

12.0

15.0

18.0

21.0

24.0

27.0

30.0

33.0

36.0


(%)

RoE RoCE


Exhibit 17: PAT margin to drive future RoE…

5.5 4.83.5 2.6 3.5 3.4

2.23.2

1.0 1.0 1.2 1.3 1.0 1.0 1.0 1.0

3.94.5

5.56.5 6.1 5.9 6.0 5.7

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)



Conference call highlights • Seven colonies comprising ~600 acres are to be redeveloped in Delhi

of which four will be redeveloped by NBCC and the rest by CPWD. The four colonies are expected to contribute ~| 20000 crore while the management expects to get approvals by March 2016 and plans to start the work by December, 2016. Furthermore, it would take five years to complete the project

• Real estate revenues saw a boost mainly on account of sale of some properties in Okhla and sale of some flats in Bhubaneswar and Patna. Furthermore, more than half property has been sold at Okhla while some retail complexes are to be converted into office area

• The management has got two orders from AIIMS viz. i) to develop a trauma centre on PMC basis worth ~| 1400-1500 crore which is to be approved by December, 2015 & ii) redevelopment of some underdeveloped property in the same area

• The company purchased two land parcels worth | 150 crore in the quarter and this takes the current land bank to | 178 acres

• Revenues worth ~| 120 crore were realised from the Kidwai Nagar project during the quarter. The management expects it to improve in the coming quarters

• The company has not got any smart city projects till date and believes it will take at least four quarters for orders to come


Outlook and Valuation At the CMP, the stock is trading at 21.7x FY17E P/E and 4.1x 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 44% and 41.5%, 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 12.7% 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 | 451/share & re-development opportunities at | 589/share. The real estate business has been valued at | 90/share (at 1x FY16 P/BV) while the EPC business has been valued at | 20.4/share (6x FY17EV/EBIT). Overall, we ascribe a target price of | 1150/share for NBCC based on SOTP methodology.

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

PMC Business 5842 451 DCF based valuation

Re-development Opportunity 7643 589 DCF based valuation

Real Estate Business 1173 90 at 1x FY16 P/BV

EPC 264 20.4 at 6x FY17E EV/EBIT

Total 14922 1150



Exhibit 19: One year forward P/E

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

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3

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14

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4

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4

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4

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15

Apr-1

5

Jul-1

5

Oct-1

5

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16

Pric

e (|

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

Source: Bloomberg, ICICIdirect.com Research

Exhibit 20: One year forward P/BV

0

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1,000

1,200

1,400

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2

Jul-1

2

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2

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13

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3

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3

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14

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4

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4

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4

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15

Apr-1

5

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5

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5

Jan-

16

Pric

e (|

)

Price 2x 4x 6x 8x 10x


Exhibit 21: One year forward EV/EBITDA

-3,000

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

13,000

Apr-1

2

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2

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3

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3

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3

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14

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4

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4

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15

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5

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5

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5

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16

EV (|

Cr)

EV 28x 24x 20x 16x 12x


Exhibit 22: Valuation

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

FY14 4,008.8 25.8 18.5 18.8 48.8 48.1 21.9 30.8 FY15 4,621.0 15.3 20.8 12.2 43.5 37.9 20.9 32.0 FY16E 5,748.2 24.4 25.7 23.8 35.2 27.1 13.4 20.1 FY17E 9,661.6 68.1 41.6 61.7 21.7 14.7 18.8 28.2

[



Company snapshot

0

100

200

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600

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1,000

1,100

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1,400

Apr-1

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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

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15

Apr-1

5

Jul-1

5

Oct-1

5

Jan-

16

Apr-1

6

Jul-1

6

Oct-1

6

Target Price | 1150

Source: Bloomberg, Company, ICICIdirect.com Research Key events

Date EventMay-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 croreMay-15 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 IndiaJun-15 NBCC has formed strategic partnership with a Malaysian joint venture firm for exploring areas for re-development around New Delhi Railway Station Jun-15 NBCC procures 7,613 sq meter plot in Jaipur for a real estate projectJun-15 DDA gave NBCC a project for development of Lake View Complex on 25 acres DDA land at Trilokpuri with estimated cost of ~| 1500 crores.Jul-15 NBCC got PMC orders worth of | 914.5 crore in June 2015Jul-15 NBCC signed pact to redevelop Indian Institute of Public Administration campus for | 435 crore Aug-15 NBCC bags orders worth | 541 crore in July,2015Aug-15 NBCC signs pact with Mahanadi Coalfields Limited (MCL) for infrastructure development of medical college and hospital at Talcher. MCL wants to set up a 500 bed

state-of-the-art Mahanadi Institute of Medical Sciences and Research at an investment of | 492 crore

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Government of India 30-Sep-15 90.00 108.00 0.002 Allianz Global Investors Asia Pacific Limited 30-Jun-15 0.52 0.63 (0.18)3 Tata Asset Management Limited 31-Aug-15 0.37 0.45 (0.03)4 Norges Bank Investment Management (NBIM) 31-Dec-14 0.30 0.36 0.365 L&T Investment Management Limited 30-Sep-15 0.25 0.30 0.006 Nomura Asset Management Co., Ltd. 30-Sep-14 0.18 0.22 0.227 Driehaus Capital Management, LLC 31-Aug-15 0.18 0.21 0.218 HSBC Global Asset Management (India) Private Limited 30-Sep-15 0.13 0.15 0.009 Capital Investment Trust Corporation 30-Jun-15 0.11 0.14 (0.08)10 Amundi Hong Kong Limited 31-Mar-15 0.08 0.10 0.00

(in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15Promoter 90.00 90.00 90.00 90.00 90.00FII 1.98 2.19 2.72 2.23 2.50DII 0.53 0.98 0.93 0.98 1.00Others 7.49 6.83 6.35 6.79 6.50

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 Nomura Asset Management Co., Ltd. 3.16m 0.22m DSP BlackRock Investment Managers Pvt. Ltd. -2.61m -0.57m Driehaus Capital Management, LLC 2.41m 0.21m Allianz Global Investors Asia Pacific Limited -2.19m -0.18m Kotak Mahindra Asset Management Company Ltd. 0.24m 0.02m Capital Investment Trust Corporation -1.12m -0.08m Emerging Global Advisors, LLC 0.19m 0.01m TCW Asset Management Company -0.65m -0.04m

Buys Sells

Source: Reuters, ICICIdirect.com Research


Financial summary Profit and loss statement | Crore

(| Crore) FY14 FY15 FY16E FY17ENet Sales 4,008.8 4,621.0 5,748.2 9,661.6

Raw Material Expense 3,548.0 4,082.6 5,084.4 8,545.8

Employee benefit expenses 182.1 195.1 234.2 281.0 Other Expenses 54.7 56.3 2.9 54.5 EBITDA 224.0 287.0 426.7 780.3

Interest 22.4 40.2 49.4 81.3 Depreciation 1.3 2.3 1.7 1.9 Other income 133.3 146.6 94.6 63.0 PBT 333.5 391.0 470.2 760.2 Taxes 86.4 113.7 127.0 205.3 PAT 247.2 277.3 343.3 555.0 PAT Growth rate 19.1 12.2 23.8 61.7 Adjusted EPS (Diluted) 18.5 20.8 25.7 41.6


Cash flow statement | Crore

(| Crore) FY14 FY15 FY16E FY17EProfit after Tax 247.2 277.3 343.3 555.0 Depreciation 1.3 2.3 1.7 1.9 Interest 0.0 0.1 0.0 0.0 Others 97.3 (12.5) (975.8) (1,265.0) Cash Flow before wc changes 432.3 380.9 (503.8) (502.8) Net Increase in Current Assets (497.4) 19.5 718.9 961.3 Net Increase in Current Liabilities (373.0) (554.3) 447.2 (3.7) Net CF from operating activities (438.1) (153.9) 662.2 454.8 (Purchase)/Sale of Fixed Assets 0.3 (6.8) (3.0) (4.0) Net CF from Investing activities 818.5 (5.0) (1,343.8) (754.2) Inc / (Dec) in Equity Capital - - - - Dividend (52.7) (70.2) (102.3) (165.4) Net CF from Financing activities (52.7) (70.2) (102.3) (165.4) Net Cash flow 327.7 (229.1) (783.9) (464.8) Opening Cash 569.1 896.2 1,059.5 1,275.6 Closing Cash/ Cash Equivalent 896.8 1,059.5 1,275.6 810.8


Balance sheet | Crore

(| Crore) FY14 FY15 FY16E FY17ELiabilitiesEquity Capital 120.0 120.0 130.0 130.0 Reserve and Surplus 1,007.3 1,204.1 2,435.1 2,824.7 Total Shareholders funds 1,127.3 1,324.1 2,565.1 2,954.7 Minority Interest - - - - Total Debt - - - - Deferred Tax Liability (23.3) (19.5) (19.5) (19.5) Total Liabilities 1,104.0 1,305.0 2,546.0 2,935.0 AssetsGross Block 37.5 43.6 46.6 50.6 Less Acc. Dep 15.0 17.3 19.0 20.9 Net Block 22.5 26.2 27.5 29.7 Net Intangibles Assets - - - - Total Fixed Assets 22.5 26.2 27.5 29.7 Investments 113.5 161.0 1,621.8 2,436.0 Inventory 996.7 1,145.7 1,417.4 2,382.3 Sundry Debtors 1,316.4 1,704.1 1,968.6 3,308.8 Loans & Advances 512.2 612.3 759.2 1,143.7 Cash & Bank Balances 1,195.9 1,059.5 1,275.6 810.8 Other Current Assets 10.2 16.2 16.2 16.2 Total Current Assets 4,031.4 4,537.7 5,436.9 7,661.8 Trade Payable 942.0 1,514.0 1,811.1 2,911.7 Other Current Liabilities 1,977.6 1,765.1 2,564.9 4,034.4 Provisions 144.0 141.2 164.7 246.1 Net Current Assets 967.9 1,117.4 896.3 469.5 Total Assets 1,104.0 1,305.0 2,546.0 2,935.0


Key ratios

FY14 FY15 FY16E FY17EPer Share Data (|)EPS - Diluted 18.5 20.8 25.7 41.6 Cash EPS 18.6 21.0 25.9 41.8 Book Value 84.5 99.3 192.4 221.6 Dividend per share 5.8 6.2 7.7 12.4 Operating Ratios (%)EBITDA / Net Sales 5.6 6.2 7.4 8.1 PAT / Net Sales 6.2 6.0 6.0 5.7 Inventory Days 90.8 90.5 90.0 90.0 Debtor Days 119.9 134.6 125.0 125.0 Creditor Days 85.8 119.6 115.0 110.0 Return Ratios (%)RoNW 21.9 20.9 13.4 18.8 RoCE 30.8 32.0 20.1 28.2 Valuation Ratios (x)EV / EBITDA 48.1 37.9 25.8 14.6 P/E (Diluted) 48.8 43.5 35.2 21.7 EV / Net Sales 2.7 2.4 1.9 1.2 Market Cap / Sales 3.0 2.6 2.1 1.2 Price to Book Value 10.7 9.1 4.7 4.1 Dividend yield 0.6 0.7 0.8 1.4 Solvency Ratios (x)Net Debt / Equity - - - - Debt / EBITDA - - - - Current Ratio 0.9 1.0 0.9 1.0 Quick Ratio 0.6 0.7 0.6 0.6



ICICIdirect.com coverage universe (Construction)

CMP M Cap(|) TP(|) Rating (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

NCC (NAGCON) 77 90 Hold 4,308 2.0 2.6 3.7 38.5 29.5 20.8 9.5 9.8 8.4 1.3 1.3 1.2 3.5 4.4 5.9NBCC (NBCC) 906 1,150 Buy 12,080 20.8 25.7 41.6 43.5 35.2 21.7 37.9 27.1 14.7 9.1 4.7 4.1 20.9 13.4 18.8Simplex Infra (SIMCON) 323 463 Buy 1,604 12.6 15.0 34.3 27.1 22.7 9.9 7.8 7.1 5.9 1.2 1.1 1.0 4.4 5.0 10.6Source: 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

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november 13, 2015 nbcc ltd (nbcc) - icici...

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