Project execution next trigger for NBCC

Analysts say order book provides revenue visibility

A lower-than-expected performance by NBCC during the March quarter has taken a toll on its share price, which has witnessed a downtrend since November last year. The NBCC stock has lost about 12 per cent after its results, slipping to its 52-week low on Monday.

Though a strong and growing order book of NBCC had kept investor sentiment firm earlier enabling the stock to trade at rich valuation, with execution and in turn revenue growth not keeping pace as per expectations, NBCC’s share price has corrected, said analysts. The delayed execution impacted the company’s project management consultancy (PMC) segment. Additionally, with indirect taxes no longer part of the revenue post Ind-AS (new accounting system), the segment’s March quarter revenue declined, feel analysts.

The PMC segment comprises 90 per cent of NBCC’s revenue. Operating loss in the real estate segment, which did not record any revenue during the quarter, pulled down operating and net profits even offsetting support from rising operating income and other income. The company, which undertakes PMC works for various government entities, bags majority of the projects (about 80 per cent) on a nomination basis (a lower portion is on competitive bidding), and remains well placed in terms of order book.

With about ~800 billion orders, which is about 13.5 times its FY18 revenues, already in its kitty and more to follow, there is significant revenue visibility. The key, however, remains execution of projects and that could improve.

The project awards for execution by NBCC to various contractors during the second half of FY18 (Pragati Maidan, Nauroji Nagar in Delhi and irrigation projects, among others) is worth ~100 billion. Another ~150 billion worth of projects are expected to be awarded in FY19. These can significantly lift the company’s earnings.

Analysts at Anand Rathi said that as work has gradually been gaining pace, NBCC’s recent subdued revenue performance will be short-lived, as the company seems geared to tender out more (project work to contractors) in FY19.

Analysts at Sharekhan, who have cut their FY19-20 earnings estimate by 10-12 per cent, feel that the stock has corrected significantly from the recent highs and as earnings are to rebound in the next two years, weakness could be history.