Over the last two years, indiscriminate delays in key redevelopment projects and likely foray into asset development business have been the major drags for the stock. While it is still difficult to ascertain about likely revenue booking from redevelopment projects, we believe sizeable opportunity in PMC business is sufficient enough to witness healthy traction, going ahead. Further, unlike other infrastructure companies, strong balance sheet, decent return ratios and sustained cash flow generation augur well for the Company. We trim down our revenue estimates by 16%/17% for FY20E/FY21E mainly to factor in prolonged delay in key redevelopment orders. However, we broadly maintain our earnings estimates for FY20E/ FY21E post factoring in lower corporate tax rate. Current valuations at 17.7x/14x for FY20E/ FY21E earnings appear to be attractive. The stock is currently trading at par valuations of the industry as against premium valuations it commanded over the years. We reiterate our BUY recommendation on the stock with an unrevised SOTP-based Target Price of Rs45.
Burgeoning opportunities in building construction are leading to significant order book build up for NBCC. However, margin volatility, stoppage of work at Delhi redevelopment projects and lacklustre pace of real estate monetisation remain key overhangs on the stock. Owing to lack of clarity on revenue and margin trajectory, we have trimmed FY20/21E EPS 19%/14% and PE from 16x to 12x, thus arriving at revised TP of INR32. We maintain ‘REDUCE’, while rolling forward the valuation to December 2020E.
The company has not given any revenue growth guidance for FY20E (Vs earlier guidance of 25-30% yoy growth). The company expects improvement in performance in the next 2-3 quarters based on approvals expected in key redevelopment projects with an improvement in margins. We have cut our earnings estimates for FY20E and FY21E by 29-32%, factoring in execution delays and certain cancellation of orders. After sharp correction in the stock, we upgrade our rating on NBCC to ADD (vs Reduce earlier) with revised target price of Rs 38, valuing at 18x FY21 EPS, factoring in medium term risk related to execution.
Valuation & outlook: The company targets revenue growth of 25-30% yoy growth in standalone basis with standalone EBITDA margins expected at 5-5.5% in FY20E. We have marginally revised our earnings estimates upwards for FY20E and FY21E. We maintain our Reduce rating on the stock with revised target price of Rs 61 (Vs Rs 60 earlier), valuing the stock at 19x FY21E EPS. We have factored in the near term risk related to project clearance, any risk on balance sheet due to shift towards asset heavy model, etc.
Outlook & Valuation: We continue to view NBCC as a robust growth story owing to its PWO status and niche presence in redevelopment of government’s old colonies. Further, a debt-free balance-sheet and superior return ratios augur well for the Company. Therefore, we continue to believe that NBCC should trade at premium to its peers. At CMP, the stock trades at 24.8x of FY20 and 19.9x of FY21 EPS, which appears to be reasonable. We do not envisage any re-rating of the stock due to slower redevelopment projects, ambiguity over Jaypee Infra deal and possibility of government pressure to acquire more sick companies in future. We maintain our HOLD recommendation on the stock with a revised SOTP-based Target Price of Rs64 (20x of EPS FY21E).
Valuation & outlook: The company targets over 30% yoy growth in the longer run. We have maintained our earnings estimates for FY19E and FY20E and introduce estimates for FY21E. We downgrade our rating on the stock to Reduce (Vs Add earlier) with revised target price of Rs 60 (Vs Rs 53 earlier) valuing the stock at 19x FY21E EPS. We have factored in the near term risk related to project clearance and any possible diversification towards asset heavy model and change in management.