NBCC IPO Review National Buildings Construction Corporation

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National Buildings Construction Corporation NBCC is coming out with an IPO of 12,000,000 Equity Shares of Rs. 10 each by way of an offer for sale of Equity shares by GOI. The company, started in 1960, is one of the few public sector companies engaged in the business of (i) project management consultancy services for civil construction projects (PMC) (ii) civil infrastructure for power sector and (iii) real estate development.

The company is headquartered in New Delhi and in addition has 10 regional / zonal offices across India. The projects undertaken by the Company are spread across 23 states and 1 union territory in India.

Issue Details:

Issue Open: Mar 22 – Mar 27, 2012.
Issue Size: 12,000,000 Equity Shares of Rs. 10.
Issue Price: Rs.90-Rs.106.
Listing At: BSE, NSE.
CARE Rating: 4 indicating above average fundamentals.
A Discount of 5 % on the Offer Price shall be offered to Retail Bidders and Employees.

Positives of the company:

1.Established brand name and reputation.
2.Operations in diverse sectors with strong Order Book position.
3.Qualified and experienced management.
4.Significant experience and track record.
5.Vast Industry knowledge and technical expertise.

Key Risks:

1.The company’s revenues are significantly dependent on our PMC business. Any decline in PMC business, could adversely affect the company’s business prospects, financial condition and results of operations.
2.Certain board of directors are involved in a number of legal proceedings, which may adversely impact the company’s business reputation.
3.There could be cyclical risks associated with this industry.

NBCC IPO Price:

The EPS for the year ended March 31, 2011 is Rs.11.71 and latest EPS is  Rs.15. The book value stands at Rs. 72 and the issue is being offered at 1.5 times the book value. At the higher end of the offer price band of  Rs.90-Rs.106 , the P/E ratio is 7 times, where most of the infra and construction companies are available. Currently, similar companies under the sector are reeling under pressure and going by the current scenario the issue is an above average one. Though the sector offers substantial growth, the company itself growing at 20%, there are concerns and risk factors which could affect the company’s earnings. At the indicative offer price, the issue is better for long-term investors only and for traders who want to sell on listing, it could be a tricky one.

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