Securing Major Projects In Srinagar And Goa Will Boost Future Prospects

Key Takeaways

• Secured large-scale projects and focus on stalled real estate developments could significantly boost future revenue and net margins.
  
• Diversification into healthcare, education, and international projects underscores strategy for stable earnings and long-term margin growth.
  
• NBCC's reliance on stalled projects and government partnerships poses risks of delays, affecting revenue consistency and exposing it to political and execution uncertainties.

Catalysts

Engages in project management consultancy, engineering procurement and construction, and real estate development businesses in India and internationally.

• NBCC has secured new large-scale projects valued at ₹28,000 crores, including significant developments like the satellite township in Srinagar and infrastructure work in Goa, which are expected to boost future revenue streams.
  
• The company is focusing on stalled real estate projects and land monetization plans, especially in high-demand regions like Delhi, NCR, and Mumbai, which could enhance future net margins and revenue.
  
• With a current order book of ₹84,000 crores and plans to reach ₹1 lakh crore, NBCC expects robust growth in execution that should drive revenue growth over the coming years.
  
• The completion of large-scale redevelopment projects, such as the Nauroji Nagar and GPRA projects, is on track, contributing to a steady increase in the top line and potential improvements in net margins through efficient project delivery.
  
• NBCC's expansion into hospital and educational institution projects, along with potential international revenue from projects in Maldives, highlights diversification strategies aimed at enhancing earnings and margin stability.

NBCC (India) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NBCC (India)'s revenue will decrease by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 8.7% in 3 years time.
• Analysts expect earnings to reach ₹8.2 billion (and earnings per share of ₹3.06) by about February 2028, up from ₹4.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 49.0x on those 2028 earnings, down from 52.7x today. This future PE is greater than the current PE for the IN Construction industry at 24.1x.
• Analysts expect the number of shares outstanding to grow by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.74%, as per the Simply Wall St company report.

NBCC (India) Future Earnings Per Share Growth

Risks

• NBCC's reliance on redeveloping stalled projects and government land parcels exposes it to potential delays and complexities in execution, which could impact revenue recognition and profitability.
  
• The sizable order book, while promising, includes long-term projects that may take 4 to 5 years to complete, causing potential challenges in maintaining consistent revenue growth and cash flow.
  
• With only ₹18,000 crores of ₹84,000 crores under active execution, a significant portion of the order book is yet to contribute to revenue, posing a risk of fluctuations in revenue streams and financial performance.
  
• Expansion into less-established segments like real estate involves uncertainties and execution risks, potentially affecting net margins if market conditions or execution do not meet expectations.
  
• Heavy dependence on government partnerships for major projects may expose NBCC to political and regulatory risks, which could delay project approvals or funding, impacting earnings.

Valuation

• The analysts have a consensus price target of ₹97.25 for NBCC (India) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹133.0, and the most bearish reporting a price target of just ₹20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹94.6 billion, earnings will come to ₹8.2 billion, and it would be trading on a PE ratio of 49.0x, assuming you use a discount rate of 13.7%.
  
• Given the current share price of ₹92.45, the analyst price target of ₹97.25 is 4.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.