NBCC - 3QFY17 Result Update - Better Operating Performance; Prospect Remains Bright - Reliance Securities

Marred by consistent delay in execution of redevelopment projects and substantial contraction in real estate revenue (-59% YoY), NBCC has reported a modest 4% YoY top-line growth at Rs14.1bn (lower than our estimate) in 3QFY17. Its PMC revenue grew by 8% yoy to Rs13.4bn. Core operating profit - excluding other operating and other income - grew by 18% YoY and 62% QoQ to Rs634mn, while EBITDA margin rose by 53bps YoY and129 bps QoQ to 4.5%. Net profit stood Rs637mn (+10% YoY and -5% QoQ) mainly aided by healthy operating performance. Though the current order book at Rs750.0bn (12.3x TTM revenue) looks robust, we cut our earnings estimates by 7%, 11% and 5% for FY17E, FY18E and FY19E, respectively as >80% of the order book belongs to redevelopment projects, which are getting delayed due to various reasons. We reiterate our HOLD recommendation on the stock with a revised Target Price of Rs260.

Healthy Operating Performance Albeit Revenue Remains Moderate

Despite a moderate 4% YoY growth in revenue, NBCC has delivered an impressive performance on operating front as its EBITDA grew by 18% YoY to Rs634mn with EBITDA margin at 4.5% (+53bps YoY and +129bps QoQ). The new provision that provides for payment towards designing and other preliminary works, even before the commencement of construction works, led to improvement in operating performance. We envisage further improvement in NBCC's operating performance in ensuing quarters led by booking of marketing charges from redevelopment projects.

Order Book Remains Robust; Execution Ramp-up Holds the Key

Looking ahead, NBCC's current order book - including re-development projects - at ~Rs750bn (12.3x TTM revenue) provides visibility of healthy revenue. It expects to add projects worth Rs30.0-40.0bn by 4QFY17E and Rs100-150bn in FY18E. Notably, large-ticket / redevelopment projects account for a lion's share (Rs650.0bn) in its total PMC projects basket (Rs675.0bn).

Outlook & Valuation

We continue to view NBCC as a robust growth story owing to its PWO status and niche presence in redevelopment of government's old colonies, while a debt-free balance-sheet and superior return ratios augur well for the Company. We trim down our earnings estimates by ~7%, ~11% and ~5% for FY17E, FY18E and FY19E, respectively to factor in delay in redevelopment projects. Further, we increase our target P/E multiple to 30x (from 28x) on healthy growth prospects (18% earnings CAGR through FY16-FY19E). We reiterate our HOLD recommendation on the stock with a revised Target Price of Rs260.

Shares of NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD. was last trading in BSE at Rs.288.65 as compared to the previous close of Rs. 285.95. The total number of shares traded during the day was 370586 in over 6151 trades.

The stock hit an intraday high of Rs. 296.7 and intraday low of 284. The net turnover during the day was Rs. 107888597.

Source : Equity Bulls

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