NBCC investors wait for revenue growth with indomitable faith
Investors’ wait for NBCC (India) Ltd’s gigantic order book to translate into revenue growth has just become longer.
Consolidated revenue in the recently concluded June quarter (first quarter or Q1) was little changed. In the earlier two quarters, it had increased in the range of 2-5%. Profit rose at a healthy pace, but lagged some analysts’ estimates.
The performance not only looks out of sync with NBCC’s Rs70,000 crore-plus order book and 25% revenue growth guidance but also raises questions about the company’s execution ramp-ups, which will have a bearing on its near-term working as well.
Revenue at the project management consultancy division, which generates most of NBCC’s revenue and earnings, slowed from 8% and 5.7% in the earlier two quarters (Q3 and Q4, respectively, of the last fiscal year) to less than 2% in the June quarter. This shows that the much-publicized redevelopment projects are yet to begin contributing meaningfully to revenue.
Unless the management says something new in its commentary in the conference call with analysts scheduled on Friday, the June quarter results can lead to another round of earnings cuts for the current fiscal year. “NBCC’s flat revenue growth is disappointing against management expectation of 25% for FY18,” Nomura said in a note.
Investors, however, are unfazed. Even as analysts pared their estimates for the current fiscal year in earlier quarters, the stock gained more than one-third over the last year.
Bonus issue, dividend payouts and the promise of a robust financial performance in future may be helping investors keep faith in the NBCC stock.
IDBI Capital Markets and Securities Ltd, in a note to clients, says that notwithstanding the misses on quarterly revenue, “game changing” catalysts may be on their way for NBCC.
As the company delivers projects at Netaji Nagar and Nauroji Nagar in Delhi from the next quarter (Q3), IDBI Capital expects NBCC’s revenue to get a big boost. “We forecast revenue CAGR of 44% over the next two fiscals. With unmatched book-bill, we think NBCC is yet to open the-rabbit-out-of-hat,” adds the brokerage firm. CAGR is compound annual growth rate.
NBCC’s Q1 results, however, show that the wait for revenue growth has been rather long and the trajectory is uncertain.
Given the complexities of the redevelopment projects and lofty stock valuations—the NBCC stock trades at 38 times fiscal year 2018 earnings—investors would do well to gain more clarity on project timelines and earnings visibility.
“We believe the execution pick-up in the core PMC (project management consultancy) segment will be the key driver of the stock, as well as NBCC’s ability to market redeveloped projects in a weak and oversupplied real estate market of the National Capital Region (NCR),” added the note from Nomura.
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