Post Issue Analysis: National Building Construction Corporation (NBCC)

The last of the government’s offering for the fiscal year 2011-12, National Building Construction Corporation (NBCC), had tapped the equity markets on March 22, 2012 with its IPO. The issue was priced between Rs 90-106 a share which meant that the exchequer would garner a sum of Rs 108-127 crore through the offering.

Despite the issue being oversubscribed by 4.9x, indicating good response from the investor community, this scrip got listed on the bourses at a discount to the issue price of Rs 106. After touching a day’s low of Rs 95.05 per share, it ended its debut day at Rs 97.05 apiece, 8.44 per cent down from its issue price.

At the time of writing our new issue analysis, we had advised readers to subscribe to the shares of the company from a long-term investment point of view. Our conviction stemmed from the coveted position that the state PSU enjoyed in the eyes of the government and its cheap valuations. At its current levels we continue to maintain our stance and urge investors to stay invested in the counter despite the listing day disappointment.

While the fundamentals of NBCC continue to remain intact, the shares at its current valuations of PE multiple of 7.5x its annualized EPS of Rs 12.5 per share and price-to-book value of 1.5x look attractive when compared to other infrastructure players operating on similar business lines and commanding similar market capitalisation. Its cash balance of Rs 1,368.1 crore as on September 30, 2011 translates into a value per share of Rs 114, thereby presenting a decent fair value trigger for the counter.

The company management on the listing day also announced their plans to further tap opportunities in the overseas markets and expand its reach. The company is already working on a police academy, renovation of the Indira Gandhi Memorial Hospital and another hospital in Male, a part of project management consultancy projects in Maldives. Going forward, NBCC plans to bid for two more projects in Maldives. The company has also emerged as a lowest bidder for a consultancy management project in Iraq. Though it is a small-sized project, the company is quite upbeat about it.

In conclusion, keeping in mind the increased demand from state and central governments for projects related with the construction of hospitals and roads as well as the impetus to urban and rural development through schemes like JNNURM and PMGSY, NBCC, with its preferred status, would largely stand to benefit. The order book of Rs 10,622.6 crore as on September 30, 2011 in the project management consultancy (PMC) segment also provides a fair revenue visibility of 2-3 years.

With a decent financial performance shown in the past, debt-free status and having maintained a healthy dividend payout ratio of 20 per cent over the past five years, we advise investors to stay invested at the current levels.