nbcc

Post OFS: NBCC OFS gets oversubscribed 1.54 times in non-retail category and 1.50 times in retail category. The response to OFS can best be described as mediocre given the clout that NBCC enjoys  as a government favored company in construction projects.

New Sebi Guidelines in NBCC OFS : As per the new SEBI guidelines, only non-retail investors were allowed to place their bids on 20th October, 2016 (T Day) for non-retail portion, and retail investors were allowed to bid on 21st October, 2016 (T+1 day). The retail investors bid today (T+1) for 20% of the portion reserved for them, i.e., 1,80,00,000 equity shares of the Company amounting to Rs.443.70 crore at floor price. They had the option to place a price bid or opt for bidding at cut off price. The new arrangement provides retail investors the benefit of discovering the cut off price of T day and place their bids on T+1 day on a more informed basis than was the case earlier. As usual retail investors i.e. those investors who place bids for shares of total value of not more than Rs.2.00 lakh, will in addition be entitled to a 5% discount. The discount to retail investors shall be applicable to bids received today (T+1).

NBCC : OFS Analysis 

The government is  selling 15 per cent stake in construction company NBCC (India) Ltd on 20/10/16, Thursday at a floor price of Rs246.50 a share, which is expected to fetch around Rs2,200 crore.  NBCC (India) Limited, is a Navratna Enterprise under the Ministry of Urban Development. Incorporated in the year 1960 and is considered a leader in the construction sector.

  • Issue Details:  
  • Date of Issue:   20 October 2016-institutional investors ; 21 October 2016 – Retail
  • Floor Price  : Rs. 246.5
  • OFS  Size:  2200 crore;  9 Crore Shares. The centre holds 90% in the company at present. 15% equity is now on sale.
  • Lead managers :   1) Axis Capital Ltd 2) Citigroup Global Markets  India Private Limited  3) Nomura Financial Advisory and Securities (India) Private Limited

About The Company :

National Buildings Construction Corporation (NBCC) was established in the year 1960 and presently under  Ministry of Urban Development. It has since then grown  manifold into a formidable player both in India & abroad and its gamut of activities include  Civil Engineering works in the capacity of Project Management Consultant & Contractor. The Company forayed into Real Estate business in the year 1988 and since then has made major strides to be turned into a formidable market player. Its activities are in following areas:

  • Project Management Consultancy
  • Engineering Procurement & Construction
  • Real Estate segment in – both commercial and residential

The company has zonal offices in more than 20 cities across the country while also having ventured into the overseas markets of Malaysia, Maldives, Botswana, Iraq and Turkey. The Company has set up three subsidiaries – NBCC Services Limited, NBCC Consultancy and Engineering Limited and NBCC Gulf LLC and one JV Company named Real Estate Development & Construction Corporation of Rajasthan Limited in view of growing business opportunities and business expansion.

Financials:

Rs. Cr
Mar-14 Mar-15 Mar-16 TTM
Sales 4,039.74 4,402.11 5,827.10 6054.92
Expenses 3,814.62 4,114.01 5,479.63 5703.39
Operating Profit 225.12 288.1 347.47 351.53
OPM 5.57 6.54 5.96 5.43
Other Income 133.26 146.58 129.05 132.57
Interest 23.52 41.35 38.08 38.81
Depreciation 1.35 2.34 2.23 2.23
Profit before tax 333.51 391.01 436.21 443.07
Tax 86.38 113.7 127.42 132.12
Net Profit 247.14 277.3 308.8 310.94
Equity 120 120 120 120
FV 10 10 10 2
EPS (unadj) 19.72 21.99 23.7 5.2
Dividend % 50 55 100
BV 95.05 111.53 125.43
Floor Price 246.5
PE (TTM) 47.4
CAGR Sales  5 Years 13.26%
CAGR Sales  3 Years 21.70%
CAGR Sales  1 Year 27.13%
CAGR NP  5 Years 17.13%
CAGR NP  3 Years 13.55%
CAGR NP  1 Year 9.30%
ROE  5 Years 23.34%
ROE 3 Years 22.72%
ROE 1 Year 21.98%
Response to IPO on Day 1:

NBCC offer for sale (OFS) received bids for more than 110 million shares (90-million shares offered). Bulk of the bids in the are believed to be from state-owned insurance companies and banks. Most of the  bids were at Rs 246.73. NBCC shares ended the day at at Rs 251.15 on the BSE.

Assessment:

  • Currently, NBCC is the only Government of India Company engaged in the Business of Real Estate.
  • Activities in this segment includes Development of Real Estate Projects like Residential, Commercial and Institutional projects for which NBCC either purchases Land parcels or enters into JVs / Consortia or get orders mandated by Government of
  • NBCC has of late, ventured into Re-development of properties for the Government and this is expected to emerge as a big opportunity.
  • NBCC India recently bagged redevelopment project in Delhi’s East Kidwai Nagar, consisting of social infrastructure, accommodation of  central government employees, office space, multi-level basement parking shopping centers, environment-friendly features such as sewage treatment plants, rain water harvesting pits, etc.
  • OFS at not at steep discount which points to inherent strength of company
  • According to some reports, foreign brokerages have a 70% ‘buy’ and 30% ‘hold’ opinion on NBCC shares.
  • NBCC gets several orders from government on nomination basis and is likely to be a beneficiary of government thrust on infrastructure , Smart cities, redeployment projects. NBCC aims to provide a total smart city solution covering both, construction and  ITES services. It has tied up with IBM and Malaysian JV firm for this purpose.
  • Railways and Urban Development Ministries have signed MoU to redevelop smart stations under smart city plans. Redevelopment work of Habibganj railway station has already been awarded to NBCC and plans for Anand Vihar (Delhi), Surat, Bijwasan and Gandhinagar are in advanced stage. Net 10 more  cities i.e. Sarai Rohilla (Delhi), Bhubaneshwar, Lucknow, Varanasi, Jaipur, Kota, Thane, Margao(Goa), Tirupati and Puducherry are to be taken up.
  • NBCC has strong revenue visibility, NBCC ended the year 2016 with order book of INR 310 bn (FY15 order book was ~INR193bn).
  • NBCC’s order book is likely to swell to Rs 75,000 crore by the end of FY17.
  • NBCC is all set to acquire 51 per cent stake in Hindustan Steelworks Construction which is primarily into steel-plant construction. NBCC hopes to utilise synergies in the PMC segment as well as the know-how on using steel in construction of buildings.
  • After witnessing some selling pressure NBCC shares recovered  2.5% from days low
  • On the risk factors, NBCC Profit margins have been erratic and low. Last quarter saw some shrinkage in profit margins. So while it is getting a variety of orders & there seems to be issue on this count, Profit margins are a matter of concern and its ability to execute the orders by outsourcing is crucial. However at present the positives outweigh the risks.  
  • Considering the unique status enjoyed by the company Retail investors can take exposure in the scrip for medium to long term
  • Retail portion in the OFS is 20% only and there is a 5% discount. However due to the present mechanism of OFS Issue allocation, retail participants tend to bid higher to get allotment and in this process their discount almost vanishes. A bid price of 259.5 , with a implied 5% discount would translate to the ground price of 246.5 laid down for the OFS and  anything above this implies nullifying of all discount and a rate above the floor price.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.