National Buildings Construction Corporation - A Sound Infra Bet

National Buildings Construction Corporation (NBCC) had tapped the equity markets with its IPO on 22nd March, 2012. Despite being oversubscribed by 4.9x, the scrip got listed at a discount and ended its debut day at Rs 97.05 a share, which was 8.44 per cent down from its issue price.

At the current levels of Rs 92 a share, we continue to maintain our bullish stance and urge investors to stay invested in the counter despite the listing day disappointment. Our conviction stems from the coveted position that the state PSU enjoys in the eyes of the government, as well as its cheap valuations.

The shares are currently available at PE multiple of 7.36x its annualised EPS of  Rs 12.50 per share and a price-to-book value of 1.3x, which looks attractive when compared to that of other infra players operating on similar business lines and commanding a similar market capitalisation. Its cash balance of  Rs 1368.10 crore as on 30th September, 2011 also translates into a value per share of  Rs 114, presenting a fair value trigger for the counter.

Recently, there has been an increased demand from the state and central governments for projects related with the construction of hospitals and roads, as well as an impetus to urban and rural development through schemes like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Pradhan Mantri Gram Sadak Yojana (PMGSY). NBCC, with its preferred status, would largely stand to benefit from these developments. In the Project Management Consultancy (PMC) segment, the order book value of  Rs 10622.6 crore as on 30th September, 2011 also provides a fair revenue visibility for two-three years.

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