National Building Construction Corporation (NBCC)

Whats up with this company.

It is quoting at below the cash on its books.

Cash - 1,325 cr. (not including the liquid current investments of 166 cr.)

Debt - NIL

Market cap - 1,206 cr.

The company has grown earnings at each year for the past 10 years at CAGR of 21%. It has good return on equity which is greater than 20% for all but two of the last 10 years (2003 & 04).

Is this IPO discount/ PSU discount ? Any thoughts ?

For people who are lazy to do the hard work, here is the ROE for the last 10 years.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sales 501 667 801 1317 1514 2024 2043 3020 3231 3582
Net profit 7 15 15 28 80 279 159 116 140 190
NPM 1.4% 2.2% 1.9% 2.1% 5.3% 13.8% 7.8% 3.8% 4.3% 5.3%
Fixed Assets 8.85 15.84 19.74 18.23 17.5 21.5 161 280 305 194
Current Assets 835.1 971 1185 1486 1688 2119 2473 2752 2738 3238
Current Liab 703 831 1035 1352 1487 1805 2177 2486 2390 2637
WC 132.1 140 150 134 201 314 296 266 348 601
Total Assets 140.95 155.84 169.74 152.23 218.5 335.5 457 546 653 795
Asset Turnover 3.55 4.28 4.72 8.65 6.93 6.03 4.47 5.53 4.95 4.51
Equity 104 90 74 46 151 335 457 546 654 795
Leverage 1.4 1.7 2.3 3.3 1.4 1.0 1.0 1.0 1.0 1.0
ROE 7% 17% 20% 61% 53% 83% 35% 21% 21% 24%
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They have some contingent liabilities of 1350 cr…

Of this 382cr is bank guarantees in lie of earnest money deposits for tenders or project completion. This is normal for project companies.

There are 1005 cr contingent claims (company has counter claim of 530 cr against this). Need to find out more about this.

The 1005cr contingent claims as on mar12 has come down to 500cr now without paying any money against claims. Infact, company got some money as a counter claim. These are claims by sub-contractors engaged by comapny or clients for whom company does construction or project work. These arise regularly due to nature of work and gets settled without any major payment by the company. This can not be a concern.

comapny has negative working capital of 770cr. If we assume that this net current liablility is paid in full, even then company will be left with 700cr of surplus cash. Market cap is 1200cr. Enterprise value = 1200-700 = 500cr. From one real estate project in Okhla, company is likely to make minimum PAT of 200cr (to come in books partly this year and remaining next year). Ex-this project, the cmpany is available at just 300cr with solid project management consultancy business. It is probably the only company that works for government department and gets money in advance. co made pat of 190cr last year and will do more than that this year.

Quarterly revenues and profits are volatile due to seasonal nature, fund flow from government and some discretion in revenue recognition. Eg company can sell okhla project and start recognising revenues. it is not doing so as it is located in a prime area and hence expects better price on full completion and hence not selling now.

Actually i was aware of the contingent liabilities and my views on them are similar to that of RasKhem. The only contingent liab to be wary of is the 1,005 cr one. If these have come down to 500 cr., then it is good news indeed, although i have not been able to confirm this.

RasKhem - could you please confirm the source of this.

I had also asked Prof Sanjay Bakshi about this stock and this is what he had to say:


Those are very good points Kashif. And obviously, if the contingent liabilities do not become real (and assuming that there are no more cockroaches in the kitchen), the stock is statistically cheap and Iad okay it for a small position in a portfolio of statistical bargains. But to build a larger position, one has to have deep conviction about the moat this company has. Itas clear that the moat is not because of any intellectual property or execution skills (projects are outsourced). The moat comes from connections, or rather preferred treatment given by govt in awarding contracts. In just a few years the company has gone from being highly leveraged to debt-free with huge float. How sustainable is it? Itas hard for me to predict that.

This is a murky business, and getting 10% commissions for projects which are outsourced to others may deliver solid earnings for a while but is this model sustainable? I am not too surea


Full details in the comments section - Link:

As mentioned by Prof Bakshi, it is hard to predict the sustainability of the moat of the company. Because if the moat of the company is indeed sustainable, then it is a no brainer buy.

But assuming that the moat of the company is not sustainable, even then is it a good buy at the current prices? That is the question i’m trying to answer.

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1 source of reduction in contingent claims is company top management. I had discussion with them.

2 I have looked at last 10 years of data. There has never been a year when it was highly leveraged (as mentioned by the prof). It always had been a net cash company with negative working capital (a big plus).What more proof people require for durability of float than the fact that the float has been consistently available to the company for at least last 10 years. If the company can fund its operations with customer advances for 10 years, isn’t that pretty longperiod to testsustainablity. There is need to understand why it gets so much float.

Interesting article on NBCC. I think, it is well positioned to grow disproportionately from here on for next 2-3 years at-least.

Views invited.

Conference Call - from Capital Markets

Sits on strong order book
Nation Building Construction Company (NBCC) held a conference call on May 25, 2015. In the conference call the company was represented by Anoop Kumar Mittal, CMD of the company.

Key takeaways of the call

    • Order book as end of March 2015 stood at Rs 20000 crore and as of date the order book was about Rs 24000 crore. Of the current order backlog about Rs 16000-17000 crore is PMC project, Rs 1000 crore is EPC project, Rs 2000 crore is Real Estate and balance are redevelopment.
    • Order backlog does-not includes DDA project that worth Rs 4500 crore bagged in Jan 2015. If we include the DDA order the order backlog will be about Rs 28-2900 crore. The DDA order is development of 100 acres which entail the company 10% PMC charge, 1% marketing charge.
    • Approval for redevelopment of 3 colonies i.e Kasturbanagar, Thyagarajanagar and Netajinagar is pending with Government of India and if that happens that boost the order book of the company by Rs 15000 crore, the current cost of construction. The redevelopment of all these 3 colonies will be in the model of Kidwai Nagar redevelopment project.
    • DDA project and redevelopment of 3 colonies in Delhi will give further fillip to the order book.
    • The sales target for FY16 is Rs 6000 crore.
    • WAQF Board has about 5-6 lakh acres of land across the country. Under the agreement between the company and the WAQF Board about 4 properties were identified for development with one property in Jodhpur and three in Bangalore in phase I. In second phase another 13-12 properties will be taken up for development. WAQF Board is a huge opportunity and properties will take up in phases.
    • Redevelopment vertical of the business, which the company is aggressively looking at requires funding requirement. None of CPWD and other GOI undertaking in construction sector is in a position to take up redevelopment as they are not cash surplus. Apart from Delhi the company is looked up by state governments of Rajasthan and Odhisha for redevelopment. So to meet the growth needs of the company it planned to raise funds from market and the board approved FPO offer, which is still approved by the GOI. If GOI goes for dilution of 15% of its stake that will be in addition to the fresh is of equity.
    • Revenue booking will start in 3-4 quarter only in both Rajasthan and Odhisha redevelopment. In odhisha the company was given 3 projects for redevelopment by State Government. Rajasthan redevelopment – Formed SPV and 3 projects were identified with about Rs 1000 crore in size.
    • Kidwai Nagar redevelopment project - The company has sold Rs 5000 crore worth of space out of Rs 5500 crore so sales yet to be done is only about Rs 500 crore.
    • NBCC will be investing only 5% of the total construction cost in redevelopment project. So the risk will not be much for NBCC so if the project is economically unviable, then as per the agreement the company will be reimbursed of their cost.
    • In Real Estate vertical the company has about 122 acre of land under various stages of development. Built up inventory as of now is worth about Rs 500 crore which are in the projects of Okhla, Gurgaon, Kolkata and couple of others. Full development of all 122 acres will result in sale of Rs 5000 crore.
    • All agency charges/marketing charges will be booked in PMC only.

Disc: Not Invested

The key issue to me with NBCC is the upcoming(unknown when?) divestment of 10-15% equity - likely to happen this FY. This was the only PSU stock I held, later booked out, as there is always the headache of constant supply(in the form of divestment) thereby affecting stock-price!

Co was repr by Anoop Kumar Mittal, CMD.Key takeaways of call by Capital Mkt
The company expects to clock a revenue of Rs 6000 crore for FY16 with PAT growth of 20-25%…Order inflow excluding redevelopment projects in Q1FY16 was Rs 4500 crore. Order intake (without redevelopment) expected for FY16 is Rs 12000-15000 crore.Order book of the company stands at Rs 26000-27000 crore. Of which the EPC projects is Rs 700-800 crore, real estate projects is Rs 3000 crore and balance are PMC projecs, which also includes Kidwainagar redevelopment project of about Rs 3500 crore.Development projects of DDA and other agencies worth Rs 10000 crore is not included in current order book of Rs 26000-27000 crore.Redevelopment proposal of 3 colonies i.e Kasturbanagar, Thyagarajanagar and Netajinagar is still pending with Government of India and if that happens that boost the order book of the company by Rs 15000 crore, the current cost of construction. The redevelopment of all these 3 colonies will be in the model of Kidwai Nagar redevelopment project.
If development and redevelopment projects are included the order book will be about Rs 50000 crore.The DDA development projects are two one is Rs 6000 crore project at Karkardooma and another is Rs 2000 crore project of Sanjay Lake View project at Trilokpuri. NBCC will get PMC charges and 1% marketing charges on DDA development projects.The company executed work worth RS 200 crore in Kidwainagar redevelopment project in Q1FY16.
The company signed MOU with IBM and a company from Korea and Malaysia for smart cities projects.In RE fully constructed unsold inventory is about Rs 500 crore and inventory including the projects under construction is Rs 5000 crore. Inventory in Okhla RE project is about Rs 250-300 crore.Cash as end of June 30, 2015 was Rs 1000 crore.

NBCC has got good orders in Aug and Sept…

Co repre by Anoop Kumar Mittal, CMD & Yogesh J P Sharma, CGM (Engineering).Key takeaways by Capital Mkt
Order book as end of Sep[ 2015 stood at about Rs 30000 crore and of which real estate order book is Rs 1500 crore, EPC order book is about Rs 1000 crore and outstanding redevelopment order book is Rs 3500 crore and balance are PMC orders. However including DDA work, the order book is currently about Rs 40000 crore. The company expects to close the fiscal with an order book (excluding DDA work) of Rs 40000 crore.
Of the order intake target of Rs 10000-15000 crore for FY16, the company has booked orders worth about Rs 5000 crore in H1FY16 and expects another Rs 5000-10000 crore in H2FY16.
Now seven colonies which are next to each other is to be redeveloped compared to earlier decision of redevelopment of 6 colonies. Of which seven colonies the company will get redevelopment work for 4 colonies and balance will be given to CPWD. The seven colonies that are to be redeveloped are Narojinagar, Netajinagar, Sarojinagar, Thiagarajanagar, Kastubanagar, Srinivaspuri and Mohamadpur. Expects the government approval to come by March 2016 and the company will be ready to commence work by Dec 2016. And the work has to be completed over 5 years. Given the total cost being Rs 20000 crore this will give annual revenue of about Rs 4000 crore over next 5 years.Expect revenue for FY16 to grow by 25%.
The company continues to see strong orders inflow for PMC business as the company continues to enjoy strong confidence of Central and state government agencies.In Oman, the company could get couple of projects. Total economy and infra development has come down by 50%.Sales in Kidwainagar project will not go to real estate. The PMC charges will be accounted in PMC business. Sales from Kidwainagar are about Rs 350 crore.
Sales accounted under Real estate is only from projects where the company is investing money. In redevelopment business the company gets only PMC charges. In Q2FY16 real-estate sales revenue come from sale of Okhla commercial space and some flats in Bhubaneswar and Patna have also sold in Q2FY15.Okhla commercial real estate more than 50% is sold and currently sold out all office space and out of total space left with 2/3 floors of retail area which will be converted into office area.

CONFERENCE CALL - from Capital Markets


Benefits of strong order intake will be visible in FY18

NBCC hosted a conference call on Feb 12, 2016 to discuss the performance of the company for the quarter ended Dec 31, 2015. In the conference call the company was represented by Anup Kumar Mittal, CMD of the company.
Key takeaways of the call

Order book currently stands at Rs 35000 crore and this does not include few projects such as that of DDA worth about Rs 15000 crore. Order intake so far in current fiscal is about Rs 17000 crore.

About 50000-60000 crore worth of redevelopment projects are in active negotiations including that for 4 colonies in Delhi, the proposal from the state governments of Rajasthan & Orissa as well as Indian Railways, New Delhi Municipal Corporation etc.

The award of redevelopment project of 4 colonies in Delhi, will happen for certain by Q2FY17. The redevelopment project of 4 colonies in Delhi is worth about Rs 20000 crore.

PMC projects – the company operates at zero risks with only fee incomes come to the company with others being a pass through. The margin has to be seen on annual basis. The company in addition to fees will earn some interest on the advances which is invested in fixed deposits before paid out to the contractors. During the quarter in some projects the advances might not paid by the customers.

In redevelopment projects apart from project management fee alike PMC projects the company will get marketing fees.

Real Estate – Not going to start any project till the market improves. The company’s land bank are historical and purchased from own funds and not through debt. So it will wait. The company currently has ongoing projects of 5-6 projects.

Inventory in completed project is just 130000 sft in the OKHLA commercial project worth Rs 300 crore. Inventory in the under construction projects largely residential are in addition to this. Overall value of unsold inventory both from under construction and completed projects is about Rs 1000 crore.

Strong traction in order book happened in FY16 especially in second half of FY16. For this to get reflected in top-line will take at least 12 months as work on these projects to commence and cross revenue recognition threshold. So the benefits of strong order intake will get fully reflected only from FY18 onwards. The company expects about 20-25% growth in FY17 as well.

Out of the Rs 15000 crore of orders not yet included in the order book the share of DDA projects (2 projects) was about Rs 8000 crore, which will get added to order book in Q4FY16. The balances are from some small redevelopment projects from Rajasthan, Orissa and Indian Institute of Public Administration and Policy.

With current order book standing at 35000 crore excluding DDA project we can expect >35% revenue growth for next 3 yrs.

We have to note that NBCC has negative capital investment which provides it FLOAT and reduces the chances of loss in case the project is unviable.

With majority of its projects are in PMC ( project management contract ) which gives more visibility in the profit margin expansion.

As per FY 17 forward PE comes around 13 -15 PE considering 30% growth.

disc; small tracking position


Nbcc to takeover loss making Hindustan steels.

Two negative things in my opinion :

  1. Moving away from core business. Diworsification.
  2. Asset light to asset heavy model.
    Any views from fellow investors?
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With Steel sector likely to improve performance in coming years, could it
be blessing in disguise ? 8 Cr annual loss can be easily absorbed by NBCC.

Hindustan steel is into infra also. However, the biggest draw seems to be huge real estate this co has in kolkata and all over india.

There is news that the government is looking to sell 15% stake here and bring it’s holding down to 75%.

How much of an impact do the members here think this will have to the long term story because I have been tracking this stock for long and have noticed this stock seems to flourish a lot due to lobbying within the government.