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“Modi wants to build a 100 new cities in India.”

 

“Modi wants to focus heavily on the North East.”

 

“Modi wants every Indian citizen to have a house by 2020.( Low cost housing)”

 

“Modi wants to look at reducing Tax Terrorism and look at other areas to fund growth of the country.”

 

Each of these headlines translates directly into beefing up the order book of NBCC.

NBCC ( National Buildings and Construction Company ) has recently been conferred a MINI RATNA status by the Government of India in respect of the excellent work that the company has been doing. Some of its projects are:

 

http://www.nbccindia.com/nbccindia/public/jsp_pub/sectorwise_all_project.jsp

 

NBCC, a civil engineering and construction services company, executes orders in one of the following basis.

1.PMC ( Project Management Contracts )

2.EPC ( Engineering Procurement Construction )

3.Real Estate Development

 

The Government of India got into a disinvestment drive in 2012 and as a part of that drive 10% of NBCC was offered to the public via an IPO in April. The Government raised 300cr, a move not justified at all, however the public can now invest into it.

 

NBCC has often been confused as a by the Govt for the Govt enterprise, which in fact it is not. It has been classified as a PWD (Public Works Department) i.e any Govt or non-govt body can approach the company for its services.

 

Here is the good news, the company has a renewed focus on real estate and want to take its share  up to 30% in the turnover. The company has an order book in excess of  20,000 cr to be delivered in the next 3-4 years.With a net worth of 1000+cr , zero debt and -ve working capital, NBCC has  a lot  of permanent advantages in its favour.

 

NBCC has been an implementing agency for :

  • JNNURM – urban renewal mission
  • PGGSY – roads
  • SWM – waste management
  • NEB – fencing in the north east

The company has executed tons of projects consisting of Roads, Hospitals, Institutions, Offices, and Residential projects. Adding to this, NBCC has been PMC and EPC for various power plant and heavy engineering companies. With renewed focus on residential and low-cost housing and with added impetus of the BJP govt, there is a lot to be expected from NBCC.

 

NBCC has land banks of 155 acres in the cities of Delhi, Patna, Gurgaon, Kolkata, Meerut, Ghaziabad, Faridabad, Lucknow.

 

People assume that these projects are mean for Govt Employees only, but its only a misconception. Due to this perception, govt employees and their relatives generally come in hordes and pre-book, leaving little to be done on the advertising front. A dream for real estate/builders.

 

Some management updates from late 2013

 

  • 100 projects of various segments to be taken up in the North East
  • 10,000 housing units to be delivered by 2018
  • Focus on affordable housing schemes
  • Large value EPC contracts signed in Power and Steel sectors
  • Target of one project in every state of India ( residential and/or low cost housing )
  • NBCC has an in-house engineering and architecture team and doe not use PMC for its projects.
  • Target profit 15-20 %, compared to the 30% target from private players.
  • Have negligible marketing and advertising costs compared t0 4-5% ad costs for private companies.
  • NBCC is targeting sick public sector companies with good land banks in the centre of the city.
  • Recently (2014 May) signed an MOU with CPWD to develop 165 acres in Vasant Kunj, Delhi to construct about 10,000 flats at a 10% cost + 2% marketing fee charge.
  • Executing a re-development project of 5,000 houses in Kidwai Nagar, new Delhi.

 

 

MOATS:

 

  1. NBCC has and can maintain above average returns as the Govt is in an infrastructure expansion mode and because NBCC has decent management capacity and no debt.
  2. This can be maintained for over at least 10 years as each project takes about 3 years and the company already has a order book of 20,000 cr. Also NBCC has huge repeat order business from institutions
  3. The company is trading at about 14 times the 2014 earnings. An FD is also at about 14 times. This is good value.
  4. Differentiated Product – No. Nothing special about the product.
  5. Marketshare – No major chunk in marketshare, but the GOI has only 3-4 companies in the real estate space and NBCC is right on top.
  6. Execution – This advantage is not because of exceptional execution, but simply because it is a GOI owned company.
  7. Customer Switching – the GOI cannot switch from NBCC to another company unless NBCC continuously fails to deliver, as all profits made by NBCC go back into its own pocket.
  8. Network – When the Govt properties are being targeted for development by NBCC one can only imagine its network.
  9. Location – real estate is all about location, location and location and thats where all the government properties are.

 

At 287 Rs a share NBCC has a M.Cap of 3,450 cr. Assuming that NBCC gets no new orders apart from the 20,000 cr orders that it already has, and executes it at a 6% margin. It would yield a profit of 1200cr, and 2015 should yield at least 400 cr. With a 15 PE multiple, the M.Cap should be at least 6000cr, a 74% upside from here. Remember, the land bank value has not yet formed a part of the calculation.

I may sound a little delusional here but i think NBCC will have an order book of at least 60,000 cr within the next 3 years, owing to the low cost housing, north east development and road development push that the MODI govt is likely to bring in.

Call me crazy again, but i see the company with a market cap of 12,000 cr in the not so distant future.i.e 3x from here.

2 replies on “NBCC LTD – Govt play in Real Estate

  1. and as of today , you are in close distance of being proven right “Call me crazy again, but i see the company with a market cap of 12,000 cr in the not so distant future.i.e 3x from here.”

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