This PSU real estate stock is up 260% in a year. Are there more gains ahead?

NBCC has ambitious plans to increase its turnover to  ₹25,000 crore in the next five years.
NBCC has ambitious plans to increase its turnover to 25,000 crore in the next five years.

Summary

  • With several growth levers in place and an impressive cash position, NBCC India is in a sweet spot.

India's real estate sector is having its day in the sun. Demand is so strong that even rising interest rates can’t bring it down. The sector has seen a remarkable recovery, with the Nifty Realty index surging almost 100% in FY24.

Now, we know about the prominent players such as Phoenix Mills, Oberoi Realty and Prestige Estates, which made a big mark in FY24 and had market-beating performance.

One under-the-radar player that does not get as much attention is NBCC (India), a government of India company. It is one of the few real estate and construction players that have carried on their business debt-free. NBCC has not had any debt on its books since 2008, so itsdebt-to-equity ratio has beennil for the past 15 years.

It operates in three major segments – project management consultancy, engineering procurement & construction, and real estate.

The company’s stock has spiked sharply of late and is currently trading near multi-year highs. It’s up more than 260% in the past 12 months and 65% just this year.

Let’s look at the key triggers that have boosted the stock and what lies ahead for the company.

Why is NBCC’s stock rising?

#Recent order wins

NBCC is one of the very few public sector companies that offer project management consultancy services for civil construction projects.

The company won several small orders in FY23 and expects around 20,000 crore worth of orders in FY25. As of February it had an order book of over 50,000 crore. In February, the company bagged three orders worth 370 crore. In early March, NBCC’s subsidiary received an order worth 92 crore. It also received a work order of 140 crore from HSCC India Ltd to procure lab equipment to install in the upcoming Himachal Pharma testing lab.

#Government’s affordable-housing push

In February, finance minister Nirmala Sitharaman announced that the government would build two crore more houses for the rural poor in the next five years under the PM Awas Yojana (Grameen).

She also announced a scheme to help middle-class families living in rented houses, slums, chawls or unauthorised colonies to buy or build their own houses.

These announcements have spurred big interest in pure-play infra companies such as NBCC.

#Strong financial position

For the first nine months of FY24, the company posted 63% growth in its total income to 657 crore and a 66% growth in its net profit. In that period it secured business orders worth 10,000 crore and completed the Amrapali project, which contributed around 1,170 crore to turnover.

It has ambitious plans to increase its turnover to 25,000 crore in the next five years. If it does manage to achieve this, it will have clocked a significantly higher growth rate than it has in the past five years.

Source: Ace Equity
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Source: Ace Equity

What’s next?

The company is currently focused on redevelopment projects such as Nauroji Nagar, Netaji Nagar and Sarojini Nagar, and plans to diversify into a new segment – metro railways. The company is also planning to monetise its land this year, and expects to generate 1,500 crore from this. NBCC also has an eye on overseas business, with a focus on African countries, and on tier-2 cities.

With all these growth levers in place, the company is in a sweet spot. It has an impressive cash position which dwarfs that of many of its peers. Most of its cash is earmarked for specific projects and cannot be used for other purposes.

The company's business model entails executing project management consultancy (PMC) projects against customer advances. Despite being in the capital-intensive construction space, the company’s working-capital cycle is moderate.

NBCC transfers most of the risks of execution, cost pass-through and so on to sub-contractors through back-to-back arrangements and bank guarantees. This also leads to a sizable liquid surplus that generates non-operating cash flow. It doesn't plan to take on any debt in the future.

How the stock has performed recently

NBCC’s stock is up 4% in the past five days and 12% in the past month. It hit a 52-week high of 177 on 5 February and a 52-week low of 37 on 11 April 2023. It is up more than 260% in the past 12 months and 65% so far this year.

Source: Google Finance
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Source: Google Finance

Here’s how it stacks up against its peers.

Source: Ace Equity, Equitymaster
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Source: Ace Equity, Equitymaster

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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