Its order book may be enviable, but investors don’t seem to think much of it. NBCC (India) Ltd’s shares have lost 28% in the past year, compared to a 19% increase in the broad market. Even the company reiterating its revenue growth guidance at over 30% in the current fiscal did nothing to change that. Its order book size is 80,000 crore, 11 times its FY18 revenues, and is expected to reach 1 trillion by FY20.

Part of the underperformance can be explained by a mixed financial performance in recent quarters. The 6% drop in operating profit despite a 19% growth in revenue in the June quarter (Q1) surprised investors.

Also, some fear that the ongoing legal tussle over felling of trees at some of its large projects may delay execution and revenue recognition.

“Its large size project (of 250 billion) related to redevelopment of three government colonies in Delhi is under litigation due to local protest on account of large-scale tree cutting on the site. Any delay in execution of the project due to this will impact its revenue growth in FY19E and FY20E," Kotak Securities–private client research said in a note. One billion equals 100 crore.

The scenario may change in the current fiscal. Many broking firms including Kotak Securities project a strong double-digit growth in revenues and profits during the current fiscal. The optimism stems from awarding of contracts for large part of the order-book.

“Out of the 800 billion order backlog, the company has awarded 350 billion. Typically, these projects awarded are executed within 24 months timeline. Even in a stretched scenario, NBCC guidance, thereby, can be met," Antique Stock Broking Ltd said in a note.

Even so, investor scepticism is not unwarranted. One, the litigation related to redevelopment projects in Delhi remains an overhang.

Second, the company has to demonstrate that margins can recover in the core project management consultancy division.

This division’s profitability was hit last quarter, leading to it missing expectations on the operating profit front. Lastly, execution remains a risk.

“While the management expects no major impact of the delay on FY19 overall revenue guidance, we remain cautious until the final orders are passed by the court. Even if the project is cleared, enhanced pace of real estate monetization (another key business area) will be key to accelerating execution," Edelweiss Securities Ltd said in a note.

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