NBCC - A Quality Cash Bargain

NBCC Ltd
- A Quality Cash Bargain with Growth

Content Index
• Our Research Desk’s views on the Stock Idea :- Slide #3
• NBCC Limited – Investment Snapshot :- Slide #9

• NBCC Limited – Business Overview :- Slide #11
• Investment Arguments :- Slide #22
• NBCC Limited – Financials:- Slide #28
• Concerns & Reasoning :- Slide #32
• Conclusion:- Slide #34

“ Specialists in discovering Multibagger stocks “

Our Research Desk’s views on the Stock Idea
Dear Members,
Before we get into the details of this Month’s “Multibagger Stock” - NBCC, let us understand the broad reasons for
the recommendation of this idea through the following questions,
- How many times do we see a company with a Cash Balance of 1646 Cr and no Debt, yet available at a Market
Capitalization of 1520 Cr (Cash Bargains) ?
- Have you seen a company which requires neither Fixed Assets nor Working Capital to grow its Business ? In fact,
the business generates significant Floats through a Negative Working Capital cycle which adds to its Cash Reserves.
- How many stocks can provide Growth Visibility in volatile times ? Company has a Strong Order Book (>3X FY13
Revenues) which provides visibility for decent growth going forward. Order Book Traction continues to strengthen.
- How many Management’s can boast a fantastic 10 Year Track Record on all parameters – Revenues (18% CAGR),
Operating Profit (27% CAGR), Profit after Tax (29% CAGR) and Net worth (41% CAGR) ?
- How many stocks are available in this Market which has a Cash Surplus Balance sheet with ROCE’s of > 50% and
yet available at P/E multiple of 7X, EV/ EBIDTA multiple of 5X and provides a Dividend Yield of 3%.
Our Stock Idea for this Month fits all the above descriptions. To give an Idea about the Business of NBCC, the
company is primarily an Implementing agency of various Government departments. The company has a status of
Public Works Organization which is parallel to CPWD (Central Public Works department). It does Project
Management and Consultancy (PMC) for the Government department projects and gets a Margin of around 5-7%
on the contract value. It outsources the Contracts to sub-Contractors for execution. The company gets Advances
from the Client and pays these contractors with a delay which leads to a Negative Working capital cycle for the
company. This ensures that the company generates strong Cash from operations and cost free liabilities to fund its
other Investments. While PMC Is the main stay business. NBCC has recently become aggressive on its Real Estate


business where NBCC buys Government/ PSU lands (or) forms a JV with them to develop real estate projects.
Looking at the Land Bank of the company and its past track record, we believe that Real Estate business division will
be a significant value creator going forward.
So, why is the Stock still available at ridiculously cheap Valuations ?
We have been tracking the stock since its IPO last year and even then it was priced at extremely attractive levels.
But some of our concerns overwhelmed us against Investing in the stock, most of which have gradually reduced
now. Some of the common concerns include,
- High Contingent Liabilities :The company had a very high Contingent Liability of around 1500 Cr during its IPO last year. Currently, its
Contingent Liabilities is less than 200 Cr and the run-down in these liabilities has been smooth with no impact on
the company’s Financials which makes us believe that, Contingent Liabilities is not a big risk.

-Uncertainty over Capital Allocation by the Management :Many Investors are concerned that the company may enter unrelated areas under the influence of
Government and thus there is always a huge uncertainty over its excess cash. Investors also worry that Minority
Investors would not be able to profit from this Cash generation and hence the stock can become a Value Trap. We
differ on this point completely.
The company has stayed away from all unrelated areas and also has been allocating its Cash reserves well to
build up its Real Estate business which would be Value Additive. Also the Dividend Payouts have been increasing
consistently over the years and thus we believe that the steep discount attributed to its Cash by Market participants
is unwarranted. The Capital Allocation track record and Cash Flow Management of the company has been nothing
short of impressive. Even the discipline in the way their Real Estate projects are structured gives us confidence.


- Change in Government Policy can bring the Business down :Many Investors including us believe that the company doesn’t really add any significant value to deserve such
attractive Margins and Terms of trade. Therefore the general concern is that there might be a change in Policy for
Government Ministries to outsource contracts directly to subcontractors by bypassing NBCC, thereby making the
company’s operations redundant. However, we would like to differ on this point a little bit.
NBCC continues to be looked upon as an In-House construction division of the Government which will get the
work done efficiently. Company’s parentage and continuing recognitions from the Government such as PWO, MiniRatna unit etc ensures that the company would continue to be the nodal agency for the construction activities of all
Ministries and PSU’s. Most of these Government entities don’t have the manpower, skill sets etc to conceptualize
and deliver on these projects and thereby outsourcing them to a Co-PSU such as NBCC makes sense. Also, NBCC is
recognized one of the few well run PSU’s and recent Orders clearly shows that NBCC would be a clear beneficiary of
all new Government constructions like Education Institutions, Hospitals, Housing Complexes, Re-Development
projects, Power Contracts, Sewage Treatment plants, Commercial complexes etc.

Only area where we might be concerned over the Long Term is the company’s ability to maintain attractive
Margins and Terms of Trade on contracts received through such Nomination basis. Till now the company has been
able to maintain Good Margins and Strong Negative Working capital cycle, as can be seen from Incremental Orders.
We would like to look at a change in this Terms of Trade as a Low Probability – High Impact event which is already
more than priced in the Market. We continue to estimate that the company will be able to make 5-7% Margins on
its PMC business (with better Product mix) and continue to earn similar levels of Free Float.
All in all, Government’s patronage for NBCC looks strong to continue and can help the company grow by
piggybacking on the increased spending by Government in New Construction across sub-sectors. With the increased
allocation in Government departments, the company’s order book continues to swell. Now let’s understand some of
the inherent positives of the company’s Business model and see why the current price may be a stealer even after
discounting for some of the Issues.


Large Growth Opportunity in PMC Business :While all segments of PMC business can grow at a decent pace on the back of increased Government spending,
the most interesting aspect comes from the re-Development of Old colonies in Delhi. Government has had a
successful experience of redeveloping colonies like Moti Marg and East Kidwai recently. The re-Development is
done in an interesting Self-Sustainable Revenue model where the construction costs are funded by 15%
commercial exploitation of Land. The successful completion of these projects by NBCC has opened up massive
prospects for future orders in other colonies.
Each of the Re-Development project which NBCC has executed (or) in the Pipeline are huge projects with value
of over 5000 Cr each. Continuous success in Re-Development can open as many as 30 such projects going forward.
Company is able to bill 10% of construction costs as its PMC charges in these projects which indicates the growth
potential in this area of business and also the future profit potential from Re-Developments.
Mix of Low Margin-PMC Business and High Margin-Real Estate business :Company’s PMC business is a Cash cow where NBCC generates strong cash flow from both operations as well as
Floats. The Margins in this business is considerably low and since there is no capital requirement for growth, the
company continues to Invest its excess capital in its Real Estate projects which have strong Margins and provide
adequate return on Capital employed (ROCE). For example, 2013 balance sheet of NBCC shows a Negative Capital
Employed of 860 Cr in PMC business and a Positive Capital employed of 633 Cr in Real Estate business. Thus one
business generates significant cash which is being deployed in a business with decent return ratios. This would help
the company to earn better returns for every rupee invested in the company and also grow its business.
Growth Potential in NBCC’s Real Estate business & Ambitious Management :NBCC’s Real Estate business has a mix of two kinds of projects – Projects developed on its own land purchased
at Market prices and Projects developed on a Partnership basis by forming JV’s with PSU’s and Departments with
excessive Land holdings. The company has been able to build a Land Bank of around 130 Acres which will help it to


to grow going forward. Company doesn’t have a policy of hoarding Land Banks and looks to buy lands selectively
which can be commercially exploited within 1-3 year time frame. With the tag of a PSU, NBCC has been able to win
the trust of people and most of its projects have been tremendous successes.
But the big opportunity lies in the JV model of partnering with Land owners to develop their un-utilized land
banks. Size of unutilized Land Banks which can be commercially exploited across Government Departments is huge
and there has been increasing traction in several Ministries to monetize these assets for funding their Investments.
We believe that NBCC has a huge advantage here to grow by capitalizing on its parentage, just like what Godrej
Properties is doing on their Group’s land parcels. An example of this can be seen from the recent Tie-Up with the
Public Works department to develop their 250 acre Land Parcel in Ghitorni, Delhi with a construction area of
around 2 Lakh Square feet.
One more important thing which we like about the company is the Management’s ambitions in growing its Real
Estate business. Management targets to start Real Estate projects in almost all states going forward and has an
internal target of developing 10000 Homes with an Investment value of 6000 Cr by 2018.
Company’s Accounting policy is conservative and Real Estate Profits could surprise :Company continues to book most of its Land purchases as Expenses on the P&L statement which ensures in an
insignificant Gross Block on its Balance sheet. We believe that the current Land Bank has been bought at attractive
prices and once the projects starts commercializing, we will see strong profits flowing to the P&L statement.
Company also has a conservative accounting policy on its Real Estate business with Sales based accounting which
results in a lag in its profit realization. All these could definitely surprise the currently skeptic Markets.
Extremely Strong Cash Position to support Real Estate growth :We believe that the company’s PMC business which generates strong Cash combined with its strong Cash
Balances should help the company to fund its Real Estate growth. The strong growth ambition in Real Estate should


help the company from not getting distracted in other un-related diversification which will result in in-efficient
utilization of its Cash reserves. The company has added almost 870 Cr Rs to its Balance sheet over the last 6 years
indicating its strong cash flow generation ability. Cash flow from Core Operating activity after Tax (Ex-Interest
Income) is almost 100 Cr every year. In addition to this there is almost a 150 Cr Interest Income which is a recurring
revenue for NBCC. All of this leads us to believe that the company will generate enough cash to fund its profitable
Real Estate growth.
When you combine all of this with a Valuation of P/E ratio of 7X, its easy to understand the “Margin of Safety”
in the stock at the current prices which can buffer some of the negative surprises. We believe that the current
Dogma about PSU stocks has gone to an extreme and it will shift as Market sentiments change overtime. This along
with consistently strong performance by the company will help the stock to discover its true value.
We can safely conclude that at the current prices, the stock definitely looks attractive as a Pure Value play. We
believe that any Investor with an Investment horizon of 3-5 years, can certainly expect a re-rating of the stock
combined with good Earnings growth. We believe that of all this makes the stock a relatively Low Risk – High Return
bet with a strong probability of delivering strong profits for Investors.
It is nowhere near the High Conviction Ideas of ours, but the stock certainly deserves a decent Allocation. We
would be releasing Multibagger Flashback report during this Month with a special focus on Asset Allocation and
the importance of Portfolio Management in creating Wealth in Stock markets. The Special Report will also show
the High Quality Mid-Cap Ideas across sectors which should be a part of your Portfolio. We generally run our
Portfolio with 10-20 stocks and would urge you to follow the same.

Regards,
[ Gokul Raj . P, Head – Investment Research ]


NBCC– Investment Snapshot
(as on Nov 27, 2013)
Recommendation :- BUY

Maximum Portfolio Allocation :- 2%
Investment Phases & Buying Strategy
1st Phase (Now) of Accumulation :- 80%

Current Market Price – Rs. 131
Current Dividend Yield – 2.82%
Bloomberg / Reuters Code –NBCC. IN/
NBCC.NS

Current Accumulation Range :- 115-130 Rs
BSE / NSE Code – 534309/ NBCC
NBCC is a Graham style Cash Bargain with the added advantage
of strong growth visibility and a decent Quality business. We
would like Investors to slowly accumulate the stock on every dip
and increase the allocation in case of correction. Stock can
definitely generate Higher Risk-adjusted returns.

Market Cap (INR BN / USD Mn) – 15.94
/257.03 [1 USD – Rs. 62.0]
Total Equity Shares [Mn] – 120.00

Core Investment Thesis :

Face Value – Rs. 10

We believe that the company could create strong Value for
Investors through its Real Estate Investments which are
funded from the cash generated through its PMC business.
It’s unique business model and strong patronage from
Government can help the stock to unlock its hidden value.

52 Week High / Low – Rs. 194.6 /
Rs.96.0
Promoter’s Holding - 90.00%
FII
- 0.67%
DII
- 2.09%
Other Holdings
- 7.24%


Key Investment Highlights


Business Overview


NBCC – A Snapshot
• NBCC is a leading player in the project management
and consultancy segment (PMC) for Government
projects and also does Civil Infrastructure work and
Real Estate development.
• The company is also engaged in sewage treatment
plants, roads, civil infrastructure for the power sector
and structural works predominantly for state and
central government ministries and various PSU’s.
• In the PMC division, the company provides
management and consultancy services for a range of
civil construction projects such as residential and
commercial complexes, redevelopment of buildings
and colonies, hospitals, educational institutions, etc.
• In civil infrastructure for the power sector, the
company provides engineering and construction
services for power projects, including design and
execution of (i) civil and structural works for power
projects (ii) cooling towers and (iii) chimneys.
• In the real estate development division, the
company focuses on residential and commercial
complexes development.


PMC - Unique Business Model
• The company has established a
relationship with different state and
central government ministries,
department, agencies and various public
sector undertakings.

• NBCC enjoys automatic nomination
status for PMC civil construction projects
related to government projects.
• The company is also preferred for
executing projects involving redevelopment of government colonies.
• The company is also involved in civil
construction work for power projects
thereby providing engineering and
construction services.

• Company’s track record of working with
Government project enables them to get
repeat business from such clients.


PMC - Business process
• NBCC sources most of its business through
nomination where the client approaches the
company for the project.
• NBCC appoints consultants through bidding
who would prepare the detailed project report.
• NBCC executes a letter of intent with the client
setting out the terms of engagement and fees.
• The consultant prepares Bill of quantities in
consultation with NBCC and the same is
submitted to the client for approval.
• NBCC monitors and supervises the work done
by contractors and ensures the project meets
the specifications of the client.
• On completion of construction the project will
be handed over to the client and final payment
and completion certificate is received from the
client for the completed project.


Upcoming PMC Projects
Project
Centre for Rural
Development
Development works at
campus
Const of 500 bedded
Hospital Kharsanwa
Police Academy work at
Male
Const of 500 Bedded Sadar
Hospital
Const of 100 bedded ESI
Hospital

Location

Client

Contract Value
(Rs.Mn)

Jaipur

Jaipur MORD
Rajiv Gandhi National Institute of
Sriperumbudur Youth Development
Swasthya Chikitsa,Shiksha Aur
Kharsanwa
Parivar,Kalyan Vibhag,Ranchi

2443
1800

1428.8

Maldives

MEA

1390

Dumka

Govt of Jharkhand

1360

Ankleswar

ESIC

• NBCC has vast experience in managing PMC projects and has done about 43 projects in April 1,2006 to
January 31,2012 and has about 78 PMC contracts which are outstanding.
• NBCC execution time frame for PMC projects ranges from 24-36 months and currently has Rs.935 Cr
ofPMC orders executable in FY14 which provides revenue visibility for the company.


920

Order Book Break-Up
• PMC business is the main stay of the
company with about 90% of revenues
being generated from PMC projects and
almost 78% EBIDTA from PMC.
• NBCC has over the years, leveraged its
PMC expertise in diverse segments of
the civil construction such as residential
and commercial complexes, institutions,
hospitals and other buildings, sewage
treatment plants, roads; and civil
infrastructure for power sector such as
cooling towers, chimneys and other civil
and structural works.
• NBCC’s Order Book of the PMC
projects comprises of about 38% institution segment, 44% infrastructure segment, 14% commercial construction and 3% residential construction.


Real Estate Development Cycle
• Land is identified, evaluated and acquired either
from the government or private owners or through
joint venture arrangements.
• NBCC existing land bank is a mix of land
acquired (either owned or through long leases from
the government on a nomination basis or through
competitive Bidding process or auction or private
owners or through joint venture arrangements.
• In order to acquire land, we enter into a sale deeds
or a perpetual lease deeds and get the property
registered in our name. For the projects to be
undertaken through joint ventures NBCC enters into
a joint venture agreement with the land owner.
• NBCC outsource the construction of projects to a
number of contractors for different aspects of the
project, while retaining a project management role.
• On completion of the project the company receives
occupation certificate and transfer the title or lease
hold rights to the customer as the case may be.


Upcoming Real Estate Projects
Project
NBCC Tower, Khekra Phase-II(UP)
NBCC Tower, Khekra Phase-III(UP)
Regency Tower, Patna(Bihar)
Valley View Apartment,Cochin(Kerela)
Residential Complex, Alwar,Phase-II-(Rajasthan)
Residential Complex, Alwar,Phase-II-(Rajasthan)
Residential Complex, Alwar,Phase-III-(Rajasthan)
Residential Complex, Meerut,Phase-I(UP)
Residential Complex, Meerut,Phase-II(UP)
Residential Complex, Saharanpur (UP)
Commercial Complex, Faridabad (Haryana)
Commercial Complex, Khekra (UP)
Commercial Complex, Action Area III, Rajarhat, Kolkata (West Bengal)
Commercial Complex, Lucknow (UP)
Commercial Complex, ITP, Ahemdabad (Gujarat)
Commercial Complex, Multi-Media Centre, Kolkata (WB)
Additional Block, Pushp Vihar, Delhi
Commercial Complex, Ghaziabad (UP)
Commercial Complex, Bhubaneshwar (Orissa)

Project Type
Residential
Residential
Residential
Residential
Residential
Residential
Residential
Residential
Residential
Residential
Commercial
Commercial
Commercial
Commercial
Commercial
Commercial
Commercial
Commercial
Commercial

• NBCC develops a wide range of residential projects from apartments to townships. They are developed as a
township with facilities such as gated security, swimming pools, community halls, post construction
maintenance. NBCC generates revenues on residential projects through sale of residential units.
• NBCC develops a number of commercial projects such as corporate office buildings and shopping malls.
NBCC generates revenues from commercial projects through sale and lease of those projects.


Rising Share of Real Estate Projects
Type of Real
Estate
Development

Completed Projects

Particulars

Develop
able
No. of Projects Area

Ongoing Projects

Forthcoming Projects

Developable Saleable Leasable
No. of Projects Area (sft.)
Area(sft.) Area(sft.)

No. of
Projects

Developable
Area(sft.)

Saleable Leasable
Area(sft.) Area(sft.)

Residential

1

11,48,58
6

5

44,73,855

34,47,338

2,89,109

10

Commercial

11

17,29,37
9

-

-

-

-

8

32,44,262.1 28,73,322.6 27,70,850

12

28,77,96
5

5

44,73,855

18

81,79,101.585 78,21,506.7 27,70,850

Total

34,47,338 2,89,109

49,34,839.485 49,48,184.1

-

• NBCC has a number of projects that are ongoing and have good number of projects in pipeline which
indicates the traction in the real estate projects undertaken by the company.
• NBCC has a total of about 81.79 Lakh (Sq.ft) of developable area in its forthcoming projects out of which
10 projects are in residential category while the remaining 8 are commercial projects.


Re-Development Projects to drive future growth

• NBCC has received a letter of intent by the ministry of urban development for re-deployment of old
government colony at Kidwai nagar (East), New Delhi. The project entails development and construction of
Type II to Type VII General Pool Residential Accommodation (GPRA) and involves the construction of 4747
dwelling units and construction of commercial spaces 104413 SQM (FAR) over a period of 5 years at an
estimated cost of Rs 4264 Cr.
• The entire cost of the project will be recouped on self- sustaining basis utilizing land as a resource and
raising funds for the project through sale of commercial space up to 10% of FAR and 10% of built up
residential area for a period of 30 years to the Government Departments, ministries and PSU’s on lease hold
basis. Initial investment of Rs.200 Cr shall yield 15% IRR for the company.
• NBCC has been further assigned areas such as Netaji Nagar, Kasturba Nagar and Thyagaraj Nagar in New
Delhi which is to the tune of Rs.5000 Cr each which provides huge growth potential. There is potential to
develop projects in 30 such areas going forward.


Power Sector Projects
• NBCC prospective clients typically advertise
potential projects in national newspapers or on
their websites. NBCC evaluates and makes a
market assessment, based on which it submits its
Bids/tenders.

• Client evaluates the tenders submitted by
various Bidders and issues a Letter of Intent to
the successful Bidder.
• NBCC invite tenders from subcontractors
and based on the technical and financial criteria
met by them, they are selected and the said work.
• NBCC monitors the project to verify whether the
project meets the specifications of the client.
• On completion the project will be handed over
to the client and final payment and completion
certificate is received from the client for the
completed project.


NBCC Ltd – Investment Arguments


Strong Order Book
Year
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E

Historic Order Book(Rs. Cr)
Closing Order
Order Book to Sales to Order Book
Book
Sales Sales
Execution(In %)
2.15
4,233 1,969
3.42
6,986 2,041
2.59
7,729 2,982
2.43
7,658 3,146
2.37
8,162 3,448
12,163
3187
3.82
12,771
3649
3.50
13,410
4126
3.25

• NBCC has strong order book of about Rs.12,163 Cr which is about 3.82x its FY13 revenues which provides
revenue visibility for the company.
• NBCC ‘s order book has been rising consistently from about Rs.4233 Cr in FY08 to about Rs.12,163 Cr in
FY13 growing at a CAGR of 23.50%.

• NBCC order book growth is set to continue and we estimate closing order book of Rs.12,771 Cr and
Rs.13,410 Cr in FY14 and FY15 respectively. Historically NBCC has executed about 30-40% of its order book
we estimate it to be about 25% in FY14 and FY15.


47
29
39
41
42
26
25
25

Preferred Government Contractor

• NBCC has been the preferred government contractor for various projects ranging from PMC to
redevelopment of old colonies. Apart from that the government is also contemplating to use the services of
NBCC for speeding up Infrastructure projects in the states.
• NBCC is likely to receive road projects worth Rs.350 Cr from Orissa state to speed up the road
infrastructure in the state which has been showing a slow progress.
• In Naxal hit states there are no takers for road projects and MOUD is looking to seek the help of CPWD and
NBCC which will give a Philip to its road infrastructure projects.
• NBCC has signed an MOU with CPWD to develop 250 acres of their land in Ghitorni.NBCC will develop
about 2 crore Sq.ft commercially exploitable residential and commercial area and the sale and construction
of the area will be done by NBCC.


Asset Light Business Model

• NBCC has an asset light business model which is the lowest in the industry on account of its unique
positioning in the sector.
• NBCC Capex to sales has historically been around 0.75% and this will continue in the medium term as major
revenues are from the PMC segment.
• NBCC has also benefitted by its real estate revenues from government contracts in the PPP mode which has
resulted in the company not requiring to pay upfront for land.
• As majority of its real estate revenues are from government contracts this has also de-risked its business by
getting a guaranteed IRR of 15% without any capex requirements.


Negative Working Capital
Net Working Capital
Inventories
Trade Receivables
Loans and Advances
Other Current Assets
Cash & Bank

FY12
FY13
FY14E FY15E
450.06 632.44 649.81 700.87
935.67
830.3 899.74 1017.40
680.43 543.24 760.9781 856.34
0.00
0.00
0.00
0.00
1325.2 1537.76 1697.18 1925.89

Current Liabilities(Rs.Cr)
Trade Payables

FY11 FY12 FY13
967 1177 820.5

Other Current Liabilities

1336 1603 1319

Total Current Assets

3391.36 3543.74 4007.71 4500.50

Short term Provisions

139.9

Short term Borrowings
Trade Payables
Current Liabilities & Provisions

257.96 266.63
270
270
0
0
0
0
2584.82 2512.83 2857.19 3205.95

Total Current Liabilities

2443 2868 2226

Advances from Customers

949.6

Total Current Liabilities

2842.78 2779.46 3127.193 3475.95

Net Working Capital(Excluding Cash)

-776.62 -773.48 -816.66 -901.34

% of Advances to Total
Current Liabilities

38.87 30.68 53.73

88.1

87.3

880 1196

• NBCC has had negative working capital on account of its efficient working capital management compared
to its peers struggling with negative cash flows.
• NBCC has negative working capital due to advances received from customers and retention margin from
the contractor. NBCC’s advances from customers constitute about 40-50% of their current liabilities.
• NBCC derives significant other income on account of advances received from customers and retention
money which aid its bottom line.


Focus on high value projects

• In PMC segment and civil infrastructure for power projects segment, NBCC intends to focus on undertaking
projects having a high order value i.e ,projects above Rs.100 Cr in value.
• In the PMC segment, NBCC intends to focus on, inter alia, redevelopment projects whereby old buildings,
complexes and colonies are redeveloped. Such projects are typically high value projects. Projects having a
high order value typically have a smaller percentage of overhead cost as a percentage of total cost and
therefore provide a higher profit margin.


Financials


Earnings Projection – P&L Account
Particulars
Net Sales
% Chg
Total Expenditure

FY12

FY13

FY14E

3447.69

3198.48

3648.95

9.59

-7.23

14.08

• NBCC’s revenues are expected to
grow by 14% and 13% in FY14 &
FY15 driven by improved order book
4126.12 and execution.

FY15E

13.08 • NBCC has EBITDA margins in the
range 5-8%.We conservatively
estimate EBITDA margins of about
3940.86
4.9% in FY14 and FY15.

3261.16

2925.28

3485.11

8.07

-10.30

19.14

186.53

273.2

163.84

EBITDA Margins(%)

5.41

8.54

4.49

Interest

1.92

1.28

1.09

Depreciation

1.36

1.35

1.33

PBT

289.83

301.64

307.37

• NBCC interest cost in FY 13 was at
1.31 Rs.1.28 Cr and is expected to be
about Rs.1.09 Cr and Rs.1.24 Cr in
327.13 FY14 and FY15 respectively.

PAT

190.17

207.5

212.09

225.72 • NBCC has a asset light business

EPS

15.85

17.29

17.67

% Chg
EBITDA

13.08 • NBCC is likely to report PAT of
Rs.212.09 Cr in FY14 and Rs.225.72
Cr in FY15 with an EPS of Rs.17.67
and Rs.18.81 in FY14 and FY15
4.49
respectively.

185.26

1.24

model which has enabled the
18.81 company to lower its depreciation.

Specialists in discovering Multibagger stocks “

Balance Sheet
Balance Sheet
Share Capital
Reserves & Surplus
Net Worth
Total Debt

FY12

FY13

FY14E

FY15E

120
675.5
795.5
258

120
830.7
950.7
266.6

120
993.6
1114
270

120
1167
1287
270

Total Liabilities

1053

1217

1384

1557

Fixed Assets
Investments
Net Current Assets

23.31
223.6
806.5

24.33
162.1
1031

25.54
207.5
1151

28.88
233.5
1295

Total Assets

1053

1217

1384

1557

• NBCC investment in Fixed Assets has been stable at Rs.24.33 Cr in FY13 and it is expected to remain at
Rs.25.54 Cr and Rs.28.88 Cr in FY14 and FY15 respectively.
• NBCC’s Investments has been steadily increasing on account of its surplus cash generation due to efficient
working capital model of the company.
• NBCC ‘s Reserves and surplus has seen a consistent increase despite the company having a historic
dividend Payout ratio of 20-23%.


Cash Flow Statement


Concerns & Reasoning
1.) Dependence on Government for Projects :
The Company’s PMC and Civil Infrastructure for power sector segments are fully dependent on projects
awarded by government entities. Accordingly, any change in the government’s policy or in budgetary
allocations may adversely affect its order book and future business prospects.

2.) Land and Real Estate related Risks :
NBCC title and development rights or other interests over land may be subject to legal uncertainties and
defects which may have an adverse impact on its ability to develop and market projects developed on such
disputed properties.
3.) Excessive dependence on PMC Business :

NBCC derived 91%, 93.4 % and 90.9 % of total income for FY 2012 and FY 2011 & 2010, respectively from its
PMC segment. Any decline or delay in this segment might have an adverse impact on the future business
prospect s and the financial condition.
4.) Venture into overseas Markets :
NBCC has also ventured into overseas markets where the expertise and domain knowledge are entirely
different. Further, any change in government policy may adversely impact the company’s revenues and
profitability.


Price Chart

Share Holding Sep
%
2013

Jun

Mar

Dec

2013

2013

2012

Promoters

90.00

90.00

90.00

90.00

FII

0.67

0.62

0.64

0.64

DII

2.09

2.19

1.81

2.25

Others

7.24

7.19

7.55

7.11

• NBCC had been less volatile during the past 1 year and

had hit a high of Rs.194.6 before correcting due to technical
reasons.
• The Stock has exhibited less volatility considering the low
liquidity in the stock.

•Technically the stock has strong support at Rs.112 thereby
providing limited downside risk.


Conclusion
We believe that NBCC is Graham kind of Cash Bargain within the space of decent Quality businesses. These king
of Cash Bargains hardly occur in Indian Markets and even when they are present, it is usually in low quality

businesses which eventually turn out to be Value Traps. We certainly believe that NBCC is one of the high
quality Cash bargains available in a Highly polarized market with a deep disdain for PSU stocks.
While we continue to emphasize the importance of Quality Business over Cheap Stocks as seen in many
of our recommendations, we believe that once in a while engagement with statistically cheap stocks is not
bad, if capital allocation in these Ideas are within limits. Being a Multi-Dimensional Investor is extremely
important and one of Warren Buffet’s biggest reasons for success and differentiation from other Value
Investors has been his Multi-Dimensional approach which includes several types from Moat based Investing
to Float based Investing to Cheap Stocks to Arbitrage positions.
In that sense - we believe that the stock pick of NBCC certainly deserves to be on the radar as, the
positives in terms of good business model, strong financials, ethical management, High Return business.
Decent capital allocation skills, growth visibility etc far outweighs the negatives like uncertainty in
government policy and Capital Allocation track record of PSU’s.
We believe that the stock at the current price of 130 Rs/ Share factors in most of the uncertainties and
can positively surprise the Market with its strong growth. Triggers can be manifold from Real Estate profits
to Optimism on PSU’s post election. The triggers for a strong Re-Rating when combined with the inherent
growth in Earnings can provide strong Multibagger returns for an Investor with a 3-5 year time frame.


THANK YOU


NBCC - A Quality Cash Bargain

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NBCC - A Quality Cash Bargain