>National Buildings Construction Corp. (NBCC): IPO Analysis

The National Buildings Construction Corp. (NBCC) is engaged in the business of providing project management consultancy (PMC) services for civil construction projects, civil infrastructure for power sector and real estate development.


Objects of the Issue: To divest 12,000,000 equity shares and achieve benefits of listing.


Investment Rationale
■ Operations well diversified, presence in various sectors: NBCC has presence across various sectors. NBCC’s project diversification ranges from PMC, real estate, civil construction and civil infrastructure for the power sector. Though, Project Management Consultancy forms the core of its sales (90%).


■ Strong Order Book visibility: As on 31st Jan 2012; the order book for the PMC and civil Infrastructure for the power sector constituted 10,613.68 crore. The total order book constituted of 30.33% from infrastructure, 28.46% from the hospital segment, 25.85% from the institutional construction segment, 9.67% from commercial construction and 2.74% from residential construction.


■ Strong Clientele in the Govt. of India (GoI) and its various arms: Projects are awarded to NBCC on nomination basis by the GoI. It has handled various government projects such as infrastructure works for security personnel, border fencing, re-development of buildings etc as well as infrastructure projects such as roads, water-supply systems and so on. Some of its key clients are The Ministry of Defence, The Ministry of Home Affairs, External Affairs, The Ministry of Finance, IIT Patna among others.


■ Focus on high value projects: NBCC intends to focus on undertaking projects of high value, above Rs 100 crore in the PMC and civil infrastructure segments.


■ Healthy financials: It is completely debt free and has a healthy balance sheet with steady cash flows. As on H1FY12, its cash balance stood at Rs 1368.2 cr, which is ~ Rs 114/share. The company has consistently maintained a dividend payout ratio of 20%.


Key concerns:
■ As PMC contributes significantly to the Sales, any decline in this business could adversely affect NBCC revenues.


■ NBCC is currently awarded projects on nomination basis by GoI; any change in this policy could pose significant risks to business visibility.


■ Valuation and Investment Argument: At the offer price bands, the issue is quoting at a P/E of 7.3-8.5 its annualized H1FY12 earnings. Most of the infra and construction companies are available at a 7x P/E. Currently, similar companies under the sector are reeling under pressure. However, an intended increase in government spending in infrastructure and a sound order book puts the Company is a sweet spot. Though the business model is concentrated on PMC segment and primary clients being various central and state governments, its steady cash flows, debt free status and dividend yield render the issue attractive. Only conservative investors with defensive mindset can SUBSCRIBE to this issue.


To read full report: NBCC
RISH TRADER