Undoubtedly, infrastructure expansion is vital for a nation’s progress. India is actively spearheading initiatives to allocate resources and focus towards infrastructure development, as evidenced by initiatives undertaken by both central and state authorities.
The disruptions caused by the pandemic to supply chains prompted India to prioritize “Make in India” and self-sufficiency, consequently driving a complete focus on infrastructure development within the country.
Both central and state governments are implementing policies to streamline the planning and implementation of projects in critical sectors like power, transportation, and urban development, including initiatives such as public transport and e-vehicles.
With a renewed government focus on infrastructure-intensive sectors like roads, railways, and Housing & Urban Affairs, NBCC is positioned for significant growth in the short to medium term.
Unlike other companies in its industry, NBCC benefits from its Public Works Organisation (PWO) status, which allows it to secure projects through nomination rather than competitive bidding.
Under this status, NBCC nominates the entity to carry out projects, and it receives payment from government entities for its services upfront, before the commencement of any real estate redevelopment, development, or construction project. As a result of this payment structure, NBCC remains free of debt and maintains a healthy cash reserve.
The stock of the company has shown an impressive growth over the years. When looking at a longer time frame of five years, the stock has risen a humongous 1,960 percent. Just over a year, the stock had risen over 250 percent.
So let’s delve deep into the article to explore the business, financials and future outlook to see if any investment opportunity presents itself.
Table of Contents
Corporate Overview Of NBCC
NBCC was founded in 1960 as the Government of India’s construction arm, carrying out civil engineering projects for state governments, several central government ministries, and the public and private sectors.
It is based in New Delhi and has footprints throughout India. It began foreign operations in 1977 and currently has presence in the Maldives, Mauritius, Seychelles, Dubai, and is exploring new prospects in Jeddah, Burundi, and Zamiba.
The company is diversifying into the aviation infrastructure sector by providing Independent Engineer services for Jaipur International Airport work, the health sector under the Ayushman Bharat Mission by constructing District and Central Drug Warehouses, defence works, the procurement of high-end machines and equipment (printing machines), and Smart City Mission projects.
Business Segments Of NBCC
Project Management Consultancy
NBCC runs its PMC projects across a wide range of construction fields at a fixed agency charge, including civil construction projects such as hospitals, educational institutes, residential complexes, and so on, as well as infrastructure projects such as solid waste management schemes, roads, and drainage systems.
Another significant factor in the PMC segment is the Company’s unique re-development business model, based on self-revenue generation, which developed NBCC as a leader in the construction sector. In this model, the government provides land for redevelopment, funds are generated by commercialising a portion of the land, and the proceeds are used to redevelop the project.
In the financial year 2023, this segment remained the most revenue generating segment accounting for almost 92 percent of the total revenue.
Engineering Procurement & Construction
NBCC’s EPC services include project conception, feasibility studies, thorough project reports, engineering, tender specifications, and a variety of packages encompassing basic and detailed engineering, project review, commissioning, testing, and handing over projects to clients in ready-to-go condition.
NBCC has also worked on a wide range of infrastructure projects, including chimneys, cooling towers, coal processing plants, roadways, TV towers, airports, runways, and so on.
This segment contributed almost 6 percent to the total sales during the fiscal year 2023.
Real Estate Development
NBCC made its real estate debut in 1988. NBCC, a construction industry leader, has played an important role in the execution of residential and commercial projects, as well as many institutional projects, by either acquiring land parcels or entering into joint ventures or consortiums with other prominent players.
Almost 2 percent of the revenue came from this segment in FY2023.
Financials Of NBCC
| FY2023 | FY2022 | FY2021 | FY2020 | |
|---|---|---|---|---|
| Revenue (in ₹crore) | 8,754.44 | 7,690.61 | 6,953.41 | 8,087.07 |
| Net Profit (in ₹crore) | 278.01 | 237.93 | 240.1 | 99.87 |
| ROE | 21.69% | 17.16% | 15.52% | 6.75% |
| ROCE | 23.81% | 18.51% | 15.54% | 16.87% |
In the fiscal year 2023, NBCC saw a substantial increase in revenue, surging by 14% to reach ₹8,754.44 crore as opposed to ₹7,690.61 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a Compound Annual Growth Rate (CAGR) of 3% in revenue.
Simultaneously, there was a noteworthy upturn in net profit, experiencing a 17% increase from ₹237.93 crore in FY2022 to ₹278.01 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 40% CAGR.
The improved financial performance was due to the completion of major projects. For example, it completed projects such as AIIMS, Bilaspur, Himachal Pradesh valuing ₹1249.82 Cr, IIT- Mandi, Himachal Pradesh valuing ₹580.90 Cr and Regional Office Complex of NICL, Kolkata valuing ₹327.62 Cr.
In FY23, NBCC maintained favorable financial metrics with a Return on Equity (ROE) of 21.69% and Return on Capital Employed (ROCE) of 23.81%.
Future Plans Of NBCC
Robust Order Book
NBCC has a strong order book of Rs. 55,300 crores on a consolidated basis as of December 31, 2023. Out of this, around 92% is from PMC (Project Management Consultancy) projects, which includes redevelopment projects.
The company expects to award projects worth Rs. 12,000 crores in the next financial year (FY 2024-25) and has already awarded projects worth Rs. 6,000 crores in the current financial year. The orderbook provides strong revenue visibility for the company in the coming years.
Revenue and Growth Targets
For the current fiscal year (FY 2023-24), NBCC expects to achieve a consolidated revenue of Rs. 10,500 – 11,000 crores. For the next fiscal year (FY 2024-25), the company has set a revenue target of Rs. 13,000 crores on a consolidated basis.
The management has an ambitious target of achieving a consolidated revenue of Rs. 25,000 crores by FY 2027-28, with a CAGR of around 20% over the next 5 years.
Redevelopment and Real Estate Opportunities
NBCC sees significant growth opportunities in the redevelopment and real estate segments. Around 40-45% of the targeted Rs. 25,000 crores revenue by FY 2027-28 is expected to come from redevelopment projects.
The company is actively exploring opportunities with various state governments and PSUs for redevelopment of their land parcels across India. NBCC is also planning to launch its own real estate projects on its existing land bank worth Rs. 700 crores.
Conclusion
With a robust order book, ambitious growth targets, and significant opportunities in redevelopment and real estate sectors, NBCC appears poised for substantial growth in the coming years. The company’s debt-free status, government backing, and diversification efforts further bolster its prospects.
As investors, what are your thoughts on NBCC’s future? Do you see the company achieving its lofty revenue targets and emerging as a major player in India’s infrastructure landscape? Share your perspectives on NBCC’s growth trajectory and potential investment considerations.
Written by Nalin Suriya
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