Analyst Corner: Retain ‘hold’ on NBCC; revised target price Rs 27

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Updated: Jul 10, 2020 8:42 AM

NBCC posted weak set of numbers in Q4FY20 (partly due to covid-19) with top line falling 17% YoY to Rs 26 bn; while EBITDA margin plunged 300bps YoY to 2%, PAT declined 42% YoY.

Analyst Corner, NBCC, EBITDA, realty monetisation, NBCC revenue growthNBCC boasts of a strong order book; however, weak margins and a muted pace of real estate monetisation remain key overhangs on the stock. (Image: NBCC Website)

NBCC posted weak set of numbers in Q4FY20 (partly due to covid-19) with top line falling 17% YoY to Rs 26 bn; while EBITDA margin plunged 300bps YoY to 2%, PAT declined 42% YoY. Though the ~Rs 700bn order book seems robust (book-to-bill of 8.7x), ~53% orders pertain to ‘self revenue generating projects’ where the poor pace of realty monetisation is likely to constrain execution.

This, along with labour availability issues (~40% of pre-lockdown level), compels us to revise down FY21/22E EPS 3%/15%. We increase the target PE from 10x to 14x as operations have resumed. Retain ‘HOLD’ with revised TP of Rs 27 (Rs 21 earlier) as we roll forward the valuation to September 2021E.

Top line fell 17% YoY to Rs 26 bn due to the pandemic; also, 53% of the order book belongs to the ‘self-revenue generation’ category, execution in which remains weak. Operating de-leverage led to EBITDA margin falling 300bps YoY to 2%.

Order book remains healthy at Rs 700bn. Of this, Rs 460bn worth of projects will be under execution by end-FY21.

Currently, activity levels are at 40% of pre-covid-19 level with 18,000 labourers available at sites compared to the 40,000 requirement.

In February 2020, NBCC received the go-ahead from Delhi High Court for resumption of work on the Nauroji Nagar project. The company commenced work on the project as well as realty monetisation post the court’s order. During May, NBCC sold Rs 5.2bn worth of office space in the project.

Overall, it has monetised real estate worth ~Rs 25bn at the project. Rising pace of realty monetisation (overall target of ~Rs 120bn at Nauroji Nagar) remains key to enhancing the company’s revenue growth.

NBCC boasts of a strong order book; however, weak margins and a muted pace of real estate monetisation remain key overhangs on the stock.

In light of the pandemic and weakness in the overall real estate market, we have slashed FY21/22E EPS 3%/15%. We are increasing the target PE from 10x to 14x (in line with the sector as work has resumed).

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