NBCC – IPO: Invest

A debt-free balance-sheet, focus on consulting services, steady orders from government departments and good execution track record make it a safe play.

March 24, 2012:

Stocks in the construction space have underperformed markets in the last couple of years. High debt, poor order book and delays in execution were some of the issues that plagued the sector.

Devoid of these concerns, National Buildings Construction Corporation, a state-owned company in which the government is divesting stake through an IPO, comes as a whiff of fresh air.

Investors with a perspective of three years can invest in this offer for sale by the government in NBCC, a construction project management service provider.

A debt-free balance-sheet, focus on consulting services, steady orders from government departments and good track record of execution make it a relatively safe play on the volatile construction sector.

The offer price of Rs 90-106 discounts the company's annualised FY-12 earnings by a modest 7.2-8.5 times. This is at a steep discount to larger public sector consultancy company Engineers India.

NBCC acts as a consultant from the stage of project conceptualisation to execution and hires a contractor to actually execute the work. It derives over 90 per cent of its revenue from project consultancy for civil construction projects. A small proportion also comes from executing civil infrastructure works for power projects and from real-estate development.

The government will dilute a 10 per cent stake in the company through this offer to raise Rs 127 crore at the higher end of the price band. The company's market capitalisation, on listing, will be about Rs 1,300 crore at the higher end of the price band. That's about half its FY11 sales.

NBCC provides consultancy services for a range of civil construction works, including residential and commercial buildings, hospitals, and educational institutions as well as infrastructure works. The Ministry of Defence, Ministry of Home Affairs and the IITs are some of its clients. NBCC mostly gets repeat orders, even as prospective clients seek its services.

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NBCC - IPO: Invest