In 2014 I expected NBCC to achieve a 60,000 cr order book in 3 years. Its just 2 years since and they already have surpassed it. There is a ton of excitement about the monopolistic areas that the company operates in and the company continuously seems to be trading at new highs given the tiny float that is in the market. Look up the Investor meeting notifications from the BSE site and you will see that while the Govt was taking time to award the latest contracts worth 32,000 cr in Delhi, their CMD met over 40 mutual fund and PE fund managers in India and Singapore. Whats more , he was present in almost every important Indian fund meeting.
At the current Stock Price of 260, the company trades at a M.Cap of 15,400 cr with an order book of 65,000 cr. Anyone with a real estate background will confirm that the most exciting time for a company in this sector, is the time of signing the contact and launching the project
. There is optimism everywhere and not a dot of gloom and doom. The execution, however is a completely different story.
The new order of 25,000 cr from the re-development is to be executed as follows.
- The govt will not invest a penny into the project.
- NBCC has to loan the projects 500-1,500 cr to kick start the project. (Charges interest @ 12% p.a)
- Once it does this, the company will sell built-up-space (mostly commercial) to companies. Given the location of these projects, this doesn’t seem like much of a challenge, Sarojini Nagar, Netaji Nagar,Nauroji Nagar
- From the sale proceeds, NBCC will first pay back its loan (500-1,500 cr) and then use the remaining funds to begin the re-development.
- From the 25,000 cr re-development, NBCC can make about 8% or about 2,000 cr margin over the next 5 years. Assuming that nothing but the commission from the commercial sale kicks in in 2017, it could only realise the remaining 2,000 cr from FY 18 onwards, which could contribute about 500 cr to its profits for the next 4 years.
Apart from this NBCC, still has an order book of 40,000 cr over its other Real Estate projects(to be built on its 200 acre land bank across India), its other JV or MOU with the Waqf board and the Air India Lands and its super business from the EPC and PMC businesses.
One thing that needs to be continuously kept in mind is that while NBCC is getting a lot of VIP treatment from the govt, the govt is parallelly increasing the ease of doing business in general. The blue bloodedness of NBCC per se, can in many areas, especially in Real Estate find competition with the new age organised players who now have immense access to foreign funds and capital.
While I am not concerned about a shrinking order book, on the contrary i’m pretty confident the it will swell to 1,00,000 cr pretty soon, I am terribly concerned on the execution. We have as a nation learnt to kill roadblocks, take pride in our ancestors, and a lot more other stuff, but i don’t think we have learn efficiency yet.
Moving out tons of Govt employees, is a great task. I would be very proud to see that happen per schedule, but i am sceptical as of now.
NBCC is a great company, with very little float, a super order book and even better prospects. While the optimism in the company is not unwarranted, keep your eye on their delivery schedules as without it, its all just froth.
If the execution does however happen, this Navratna is not over the top at 15,600 cr. A combined market cap of DLF, Godrej Properties, Oberoi Realty, India Bulls Housing, HDIL, Presige Estates and NBCC is just about 80,000 cr and that of Asian paints alone is 98,000 cr.
Still thinking ???