NBCC IPO Review by ARM Research (Apply)

Review By ARM Research Pvt. Ltd. on March 23, 2012

Total Issue of Shares (lk): 12,000,000
QIB Investors (lk): 59,40,000
Non -Institutional Investors (lk): 17,82,000
Employee Reservation (lk): 120,000
Retail Investors (lk): 41,58,000
Issue opens on: 22nd Mar,2012
Issue closes on: 27th Mar,2012
Price Band (Rs.): 90 - 106 **
Lot size (No. of shares) and multiple: 60
Face Value (Rs): 10
Issue Size (Rs in Cr.): 108-127
Equity Shares outstanding prior to the Issue: 120,000,000
Equity Shares outstanding after the Issue: 120,000,000

** (The retail bidders - will be entitled to a discount of 5 % on cut-off price - on allotment)

NBCC Ltd was incorporated in 1960 and is a wholly owned GOI undertaking under the Ministry of Urban Development (MOUD). NBCC is headquartered in New Delhi and in addition they have 10 regional / zonal offices across India. NBCC is one of the few public sector companies engaged in the business of project management consultancy services (PMC) for civil construction projects, civil infrastructure for power sector and real estate development. Company's PMC projects segment includes residential and commercial complexes, redevelopment of buildings and colonies, hospitals, educational institutions, infrastructure works for security personnel, border fencing as well as infrastructure projects such as roads, water supply systems, storm water systems and water storage solutions.

NBCC Ltd's civil Infrastructure for power sector segment includes providing engineering and construction services for power projects, including design and execution of civil and structural works for power projects, Cooling towers and Chimneys. Overall across the spectrum the company has successfully completed 43 projects and currently has 141 Ongoing Projects and 78 Forthcoming Projects. NBCC Ltd has successfully completed 8 real estate development projects. They have in hand 4 residential Ongoing Projects, 6 residential Forthcoming Projects and 3 commercial Ongoing Projects and 6 Forthcoming Projects.

The projects undertaken by NBCC are spread across 23 states and 1 union territory in India. In addition, they have also undertaken projects overseas. On October 14, 2008; the Government granted NBCC Schedule 'A' PSU status. They have also been awarded ISO 9001:2008 from the Bureau of Indian Standards in respect of its consultancy and project management division.

CARE has assigned an IPO Grade 4 to NBCC IPO indicating company has 'Above Average Fundamentals'.

Issue Objectives

National Buildings Construction Corporation Ltd (NBCC) is coming out with an IPO of 1.2 Cr Equity Shares. This is an offer for sale of equity shares by the Government of India (GOI) as part of the decision to divest part of its shareholding in NBCC.

NBCC will not receive any IPO proceeds from the same. The GOI shareholding will reduce from 100% to 90% post issue.

Valuations...

NBCC is a debt free company. The total income of the company has grown CAGR 12% during FY08 -FY11. NBCC enjoys the benefit of repeated orders from the central & state government bodies.
NBCC enjoys a healthy Return on Net worth ~23 %during FY11 since it derives ~90% of the revenues from Project Management Consultancy for civil construction projects which are low capital intensive & working capital intensive. PMC business model projects segment includes diverse areas such as residential and commercial complexes, redevelopment of buildings and colonies, hospitals, educational institutions, infrastructure works for security personnel, border fencing as well as infrastructure projects such as roads, water supply systems, storm water systems and water storage solutions.
NBCC cash balance as on H1FY12 stood at Rs 1368.2 cr, which is ~ Rs 114/share.
The company has consistently maintained a dividend payout ratio of 20%
NBCC has a healthy unexecuted order book position of Rs 10,623 Cr which is 3.3x sales of FY11.
At the upper band of the issue price of Rs 106/-, NBCC is valued at ~8.5x - H1FY12 Annualized EPS/share of Rs. 12.48/- . The company has a book Value of Rs 60.70 and P/BV of 1.75x at upper end of the price band.