Dominant Government ownership, continued business support from Government, track record of project execution, consistent top line growth, comfortable order book position and attractive dividend yield make NBCC a safe bet.
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OFFER AT A GLANCE |
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|
Name |
NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD |
|
Offer Quantity |
120 lakh shares of Rs 10 each |
|
% on Total Equity |
10% |
|
Offer Price |
Between Rs 90 to Rs 106 |
|
Offer Amount |
Between Rs 108 cr and Rs 127 cr |
|
Application Quantity |
60 & Multiples of 60 |
|
Offer Opens |
March 22, 2012 |
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Bid/Offer Closes |
March 27, 2012 |
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Rated By |
CARE |
|
Rating |
4 out of 5 |
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Lead Managers |
IDBI Capital Market, Enam Securities |
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Registrars |
Bigshare Services |
The Offer
The present public issue is an offer for sale of 1.2 cr shares by Government of India at a price band of Rs 90 to Rs 106 aggregating to Rs 108 cr to Rs 127 cr. A discount of 5% (equivalent to Rs 5.30 on the upper band) is being offered to retail bidders.
Issue Object
The objects of the offer are to carry out the divestment of 10% of the company’s equity by the Government and to achieve the benefits of listing.
Background
Incorporated in 1960 as a wholly owned Government of India undertaking under the Ministry of Urban Development, National Buildings Construction Corporation Ltd (NBCCL) is engaged mainly in the business of providing project management consultancy services in the field of real estate development. Over the years, NBCCL has established itself as an execution arm of various State and Central Government bodies. NBCCL was granted Schedule ‘A’ PSU status in October 2008 enabling it with greater functional autonomy.
Between April 2006 and September 2011, the company has reportedly executed 43 projects ranging construction of buildings, road works, commercial complexes, hospitals, etc. across the country.
NBCCL has three divisions. The largest segment viz. project management consultancy (PMC) derives business from State and Central Government bodies through nomination basis. The other two divisions namely Power Projects and Real Estate procured orders through competitive bidding across India. The company’s cost structure reveals that a significant portion is paid to sub-contractors. Its operative cycle is low on account of project advances received from the State/Central Government and low inventory days as a significant portion of the construction work is executed through sub-contracts.
Track Record
NBCCL is a zero debt company with a consistent growth in top line in last four years. The company’s CAGR of revenue for last four years and Return on Net Worth for last fiscal are reasonably attractive. From Rs 1,442 cr in fiscal 2007, the company’s revenue has steadily grown to Rs 3,126 cr in fiscal 2011. The Return on Net Worth worked out to over 23% in fiscal 2011.
Nevertheless, NBCCL’s bottom line has been inconsistent. From Rs 81 cr in 2007, the net profit shot up to Rs 280 cr in fiscal 2008 but, plummeted to Rs 159 cr in fiscal 2009. In 2010, it further dropped to Rs 116 cr and recovered to Rs 140 cr in fiscal 2011.
On the fillip side, the company’s net cash flow from operations has been positive for the past five years. It has also maintained a dividend payout-ratio of 20% in recent years which is in line with the guidelines stipulated by the Ministry of Finance for profit making public sector enterprises.
Prospects
The real estate sector witnessed a margin compression last year due to increase in construction/interest cost coupled with depressed demand preventing adequate price increases. However, with increased demand from projects by State and Central Government pertaining to construction of hospitals, urban development, construction of roads, etc., PMC companies like NBCCL which receives order on nomination basis may continue to do well in the coming years. Further, the thrust provided by the Union Budget to the infrastructure industry should also enhance the scope.
At the end of September 2011 the company had an order book position of over Rs.10000 cr which is more than three times of the fiscal 2011 revenue. Since the orders are to be executed within 24-26 months, the immediate prospects thus seem to be fully secured.
Valuation
Coming to NBCCL’s pricing, the offer band of Rs 90 to Rs106 compares well with other big-ticket realty players listed on the exchange. The offer price discounts the company’s historical earnings less than 10 times as compared to the Realty Composite P/E of 20-plus and the Market Composite of about 16 times. Whereas Realty Price to Revenue ratio works out to 4.6x NBCCL’s P/R is quite low (less than 0.5). What’s more, NBCCL’s current dividend base gives an attractive yield of around 3% which is far higher than the realty majors. Perhaps the only factor that may go against NBCCL is its operating margin which is in single digit.
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How NBCCL compares with major Realty developers |
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(19-MAR-2012) |
NOS |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
OPM |
YLD |
PRICE |
|
SCRIP |
|
(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
|
DLF |
|
32,768 |
22.4 |
2.4 |
96.5 |
9.8 |
58.9 |
1.0 |
193 |
|
Oberoi Realty |
|
8,644 |
35.8 |
4.3 |
26.3 |
23.2 |
51.0 |
0.4 |
263 |
|
Unitech |
|
7,260 |
20.8 |
0.8 |
13.9 |
5.5 |
28.4 |
0.4 |
28 |
|
Godrej Properties |
|
4,466 |
50.2 |
5.0 |
63.9 |
8.1 |
30.4 |
0.7 |
639 |
|
HDIL |
|
3,838 |
7.9 |
0.4 |
9.2 |
3.0 |
46.9 |
0.0 |
92 |
|
Realty Compos |
36 |
82,844 |
20.5 |
1.3 |
23.5 |
4.6 |
32.5 |
|
|
|
Market Compos |
2,954 |
6,140,007 |
15.8 |
2.4 |
29.2 |
1.3 |
22.0 |
|
|
|
NBCCL |
Hi-Band |
1,272 |
9.1 |
1.7 |
10.6 |
0.4 |
5.1 |
2.9 |
106 |
|
|
Lo-Band |
1,080 |
7.7 |
1.5 |
9.0 |
0.3 |
5.1 |
3.4 |
90 |
IPO Rating
CARE has assigned a grade of 4 (out of 5) to the NBCCL IPO. The grading is largely influenced by the dominant ownership of Government of India, continued Government support, past record of project execution, consistent growth and comfortable order book position.
However, as a majority of NBCCL’s present orders are sourced from Government entities on nomination basis any change in policy towards public-private partnership as opposed to nomination basis may adversely affect the company’s prospects.
Investment Banker’s Track
NBCCL’s public offer is managed by IDBI Capital and Enam Securities. The former was associated with 9 public issues in last three calendar years of which only one IPO fetched returns worth mentioning about. Investors in three IPOs lost more than a half of their investment value. Four issues inflicted losses between 26% and 47%.
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IDBI CAPITAL-ASSOCIATED IPOS SINCE 2009 |
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Sl. |
Issuer |
IPO |
IPO |
Current |
Current |
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No. |
|
Date |
Price |
Price |
Gain% |
|
1 |
Rishabhdev Tech |
4-Jun-09 |
33 |
2.93 |
-91.1 |
|
2 |
Astec Lifescience |
29-Oct-09 |
82 |
29.50 |
-64.0 |
|
3 |
JSW Energy |
7-Dec-09 |
100 |
68.50 |
-31.5 |
|
4 |
Arss Infras |
8-Feb-10 |
450 |
117.70 |
-73.8 |
|
5 |
SJVN |
29-Apr-10 |
26 |
19.25 |
-26.0 |
|
6 |
Gujarat Pipavav |
23-Aug-10 |
46 |
56.10 |
22.0 |
|
7 |
MOIL |
26-Nov-10 |
375 |
260.00 |
-30.7 |
|
8 |
Aanjaneya Life |
9-May-11 |
234 |
524.25 |
124.0 |
|
9 |
SRS |
23-Aug-11 |
58 |
30.95 |
-46.6 |
Of the 24 issues managed by the more market savvy Enam Securities during the last three calendar years, only six (25%) are currently quoting above the offer price. In fact, save Coal India (+37%) and Pipav Defence, none of the returns is worth speaking about. Six IPOs have drained more than 50% of the investment value. Seven issues lost between 30% and 45%.
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ENAM SECURITIES-ASSOCIATED IPOS SINCE 2009 |
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|
Sl. |
Issuer |
IPO |
IPO |
Current |
Current |
|
No. |
|
Date |
Price |
Price |
Gain% |
|
1 |
Adani Power |
28-Jul-09 |
100 |
69.30 |
-30.7 |
|
2 |
NHPC |
7-Aug-09 |
36 |
20.60 |
-42.8 |
|
3 |
Pipavav Defence |
16-Sep-09 |
58 |
80.70 |
39.1 |
|
4 |
D.B.Corp |
11-Dec-09 |
212 |
210.00 |
-0.9 |
|
5 |
Vascon Engineers |
27-Jan-10 |
165 |
43.70 |
-73.5 |
|
6 |
United Bank |
23-Feb-10 |
66 |
69.55 |
5.4 |
|
7 |
IL&FS Transport |
11-Mar-10 |
258 |
189.10 |
-26.7 |
|
8 |
Persistent Systems |
17-Mar-10 |
310 |
311.45 |
0.5 |
|
9 |
Nitesh Estates |
23-Apr-10 |
54 |
15.95 |
-70.5 |
|
10 |
Jaypee Infra |
29-Apr-10 |
102 |
50.35 |
-50.6 |
|
11 |
Indosolar |
13-Sep-10 |
29 |
4.91 |
-83.1 |
|
12 |
Eros International |
17-Sep-10 |
175 |
202.35 |
15.6 |
|
13 |
Ramky Infras |
21-Sep-10 |
450 |
209.85 |
-53.4 |
|
14 |
Electrosteel Steel |
21-Sep-10 |
11 |
6.46 |
-41.3 |
|
15 |
Va Tech Wabag* |
22-Sep-10 |
524 |
415.10 |
-20.8 |
|
16 |
Ashoka Buildcon |
24-Sep-10 |
324 |
198.00 |
-38.9 |
|
17 |
Oberoi Realty |
6-Oct-10 |
260 |
263.35 |
1.3 |
|
18 |
Prestige Estates |
12-Oct-10 |
183 |
104.40 |
-43.0 |
|
19 |
Coal India |
18-Oct-10 |
245 |
334.85 |
36.7 |
|
20 |
Claris Lifesciences |
24-Nov-10 |
228 |
145.55 |
-36.2 |
|
21 |
A2Z Maintenance |
8-Dec-10 |
400 |
112.65 |
-71.8 |
|
22 |
Punjab & Sind Bank |
13-Dec-10 |
120 |
78.80 |
-34.3 |
|
23 |
Future Ventures |
25-Apr-11 |
10 |
8.53 |
-14.7 |
|
24 |
TD Power Systems |
24-Aug-11 |
256 |
246.10 |
-3.9 |
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* Price adjusted to post-IPO splits |
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Concerns
- Huge claim of Rs 967 cr against the company not accounted in books at the end of September 2011.
- Contingent Liabilities at the end of last five fiscals far exceed the company’s respective year’s bottom line.
- Large work force and past labour unrest.
- Fluctuating bottom line despite a steady growth in top line.
- Too much dependence on Government contracts.
- Average cost of acquisition of the offeror being only Rs 7.50