Revenues to rise in FY19; pace of work on projects will determine stock movement.
NBCC management during our recent interaction, indicated a shift in focus from order accretion to execution. The company is now geared to award design-build contracts/turnkey contracts of `10 billion plus and prune execution timeframe to 18-24 months. While it has already awarded. `60 bn worth projects (Pragati Maidan, Ghosikhurd irrigation) over the past 1.5 months, tendering is underway for several large projects. We expect execution to gather pace in FY19 when work gathers steam on AIIMS, redevelopment projects in Delhi, among others. Maintain Hold with target price of Rs 223.
Changing tack with eye on pruning execution timeframe: NBCC’s target is to prune the number of projects under implementation from 350 currently to 100 going ahead. Hence, it is shifting focus to design-build/turnkey contracts of `10 bn plus. The company is also awarding projects using internationally competitive bidding strategy as well as permitting contractors to form joint ventures to enable them to handle large size contracts. The rationale behind change in strategy is to reduce execution timeframe to 18-24 months from 24-30 months currently and to minimise cost overruns.
Outlook and valuations: positive development — Burgeoning public sector spending on building construction is triggering significant order accretion for NBCC. We expect the company to commence work on large value projects over Q4FY18/ Q1FY19 and hence revenue growth to step-up in FY19. Pace of work on these projects will determine stock performance, in our view. We maintain Hold with target price of Rs 223, based on 33x FY19E EPS.