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Along expected lines: NBCC’s Q3FY22 revenue declined 4% y-o-y to Rs 20 billion (up 5% q-o-q). Ebitda margin continued its upward trend, improving ~60bp y-o-y and ~90bp q-o-q to 3.6%. Higher tax rate dragged PAT down 11% y-o-y to Rs 830 million. The company removed ~Rs 60 billion of slow-moving orders from its order book; consequently, the order book declined q-o-q to ~Rs 650 billion (~Rs 720 billion in Q2FY22) with redevelopment projects contributing ~Rs 300 billion. Running projects stand at ~Rs 165 billion with another Rs 25 billion projects under tendering. The pace of realty monetisation on ‘self-revenue generation’ projects is a key catalyst, in our view. Retain ‘hold’ with a target price of Rs 46 as we roll forward valuations to Jun-23E.
Margins improve: Revenue improved 5% q-o-q to Rs 20 billion as the company continued its recovery from the pandemic. Ebitda margin rose ~90bp q-o-q to 3.6% (up ~60bp y-o-y). However, higher tax rate led to PAT falling 11% y-o-y to Rs 830 million (up 15% q-o-q). Ramp-up in execution post-second wave has been slow, forcing management to cut revenue guidance to ~Rs 75 billion (~Rs 85 billion earlier). We believe, margin trajectory — disappointing over the past few years — will be a key stock trigger.
Real estate monetisation key: Consolidated order book stands at a strong ~ Rs 650 billion. While book-to-bill at ~8.1x seems robust, ~ Rs 300billion worth of orders pertain to ‘self-revenue generating projects’, wherein the pace of real estate monetisation will determine execution. NBCC has monetised ~ Rs 42 billion of real estate in Nauroji Nagar to date (~Rs 5.4 billion in FY22). Of the total order book, ~ Rs 165 billion worth of projects are under execution while another Rs 25 billion projects are currently under tendering. In the current fiscal year, the company has awarded ~ Rs 29 billion projects to contractors to date. It has executed ~ Rs 8 billion worth of work in the Amrapali projects to date (including ~ Rs 3 billion in Q3FY22). It expects to receive funds from banks over the next fortnight post which the pace of execution should improve.
Outlook and valuation: Realty monetisation key; maintain ‘hold’. The pace of realty monetisation in the self-revenue generation projects, pickup in execution and ebitda margin trajectory are the key stock catalysts in our view. We retain ‘hold/SN’ with a revised TP of Rs 46 (25x Jun-23E EPS).
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