Ramesh Damani recommended an investment in National Buildings Construction Corporation (NBCC) on the logic that it has shown healthy growth in the recent past. The EBITDA margins are also on the uptick. Also, NBCC has a bebt-free status with a huge cash balance.
PN Vijay put a buy on NBCC for the same reasons. He also pointed out that the valuations at which the stock is quoting (PE of 14 on current earnings) is attractive.
Nomura has now recommended a buy with a target price of Rs 1,049, which implies a 49% upside.
Nomura pointed out that NBCC enjoys negative working capital (and a cash-rich balance sheet) and passes on risks to sub-vendors on back-to-back contracts, thus remaining asset light.
Nomura also pointed out that NBCC’s status as PSU helps it bag orders without much competition and even on a nomination basis. NBCC also has a strong presence in the project management contract (PMC) business with a strong customer base in mostly government organisations that brings in a base order inflow of around USD 800 million per annum.
Nomura emphasized that four large housing colony redevelopment orders worth USD 3-4 billion are in the pipeline, which can potentially add USD 3-4 billion to NBCC’s order backlog. NBCC is also in discussions with various financially distressed PSUs (including Air India) and the Waqf Board (0.6 million acres of landbank) for the development of surplus land, which could be a large multi-billion dollar opportunity. Together with the upcoming 100 Smart Cities opportunity, this could drive strong growth over next several years.
Investors who have been in the Equity markets since 2005, relatively new, would realise the fate of BLKashyap, DLF, Unitech, C&C Construction and a huge number of construction plays. In a matter of 1-2 rocky years post 2008, these concerns had lost 90 per cent of their peak market cap. Now in 2014, a decade later a huge snow ball is being created out of NBCC. The 90 per cent GOI owned PSU quotes at a fabulous 35X FY14 earnings and roughly 9 times Book. The company has often boasted about it’s access to Government funds and Government land, and some outright ridiculous projects like rebuilding the Air India, Railway, Waqf Board land and the most colossal of all-building the state capital of Vijaywada. The latter may happen eventually but investors need to ask, in how many years? 10-15 or 20 years and if so, should NBCC possess the current market cap.
So strong is the bull operators behind this counter that have propelled the stock from Rs 170 a year back to Rs 730 now. The bubble may keep becoming bigger. The entire stock with the public and all funds put together is 10 per cent. Out of which the daily delivery never exceeds 10 per cent. So anyone with stock and cash can keep pulling the counter to Rs 1500.
Are the powers watching? Why is Sebi not asking GOI to increase the NBCC float to 25 per cent? Or why are stock exchanges not putting the stock into the T category? And if the GOI is serious, why are they not putting the NBCC stock up for divestment. While the Divestment ministry is struggling to find candidates to Sell, they have NBCC right in front of their eyes. But they are persisting with SAIL and Coal India, when a 30-40 per cent divestment can fetch the GOI Rs 3000 to Rs 4000 crore at current price.
Finally at current market cap, NBCC is now bigger than Unitech-an entity that developed South City in Gurgaon and all the construction companies of the country put together.
Very sensible advice.
Very good post with facts .. speaks so much truth ..
Thanks,
Dhawal, thanks for all the info, and based upon that, even NAMO can’t bring this stock higher with his reforms. Operator manipulation is something that I used to hear about, but am now seeing in person. Many stocks worthy of higher valuations are stagnating, whereas stocks with no future are in high PE multiples. One can also look at an unusual stock called BIRLACOT listed in the NSE, with a 52 week high of .25 paisa and low of .05 paisa. Going by the name, it belongs to one of the Birlas, but why would someone want to keep a stock listed if is almost worthless ? This stock is almost on a daily basis either on an upper circuit of .05 paisa or a lower one.