National Buildings Construction Corporation (NBCC) has surprised positively YTD in FY16F on a stronger-than-expected order inflow of Rs 170 billion, which has led to a backlog of Rs 350 billion already. In addition, the company says it has Rs 150 billion of orders in the pipeline which will likely be in the order backlog over the next six-eight months. While execution has been a tad slower than expected, we note this is due to NBCC taking more long-gestation orders than it has previously.
Slippage of large redevelopment orders from FY16F to FY17F has also led to us trim our near-term earnings estimates, while our longer-term stance on the stock remains positive on- NBCC recently secured large orders, including the AIIMS redevelopment (Rs 58 billion), AIIMS Trauma Centre (Rs 30 billion) and ITPO Pragati Maidan (`21 billion), further boosting visibility in addition to the known redevelopment order pipeline.
We cut our FY16F/17F EPS estimates by 21/23% on slower execution and spillover of certain large orders into FY17F. We shift to DCF valuation (Ke at 13.8%, g at 5%) as the large redevelopment orders the company wins have finite lives, which yields a target price of Rs 1,100.