ProfitNama

ProfitNama

NBCC (India) Limited : Stock Analysis November 2023

Weak execution and delay in asset monetisation nags NBCC investors despite  recent order wins

COMPANY OVERVIEW FOR LAYMAN OR RETAIL INVESTORS:

NBCC (India) Limited is a Government of India Navratna Enterprise under the Ministry of Housing and Urban Affairs. The Company has been in existence for over 50 years and is one of the leading construction companies in India. NBCC has a diversified portfolio of projects, including residential, commercial, infrastructure, and power projects. The Company has a strong track record of execution and is known for its quality and timely completion of projects. NBCC is a debt-free company with a strong balance sheet. The Company has a healthy dividend payout ratio and is a good long-term investment option.

VITAL COMPANY RATIOS EXPLAINED FOR A LAYMAN:

  • Price-to-Earnings (P/E) Ratio: This ratio measures the amount an investor is willing to pay per share of a company’s stock relative to its earnings per share (EPS). A high P/E ratio could mean that the stock is overvalued, while a low P/E ratio could mean that the stock is undervalued. NBCC’s P/E ratio is 32.5, which is slightly higher than the industry average of 28.7.

  • Book Value: This is the value of a company’s assets minus its liabilities. A high book value could mean that the company is financially strong, while a low book value could mean that the company is financially weak. NBCC’s book value is ₹10.9, which is slightly higher than the industry average of ₹9.2.

  • Dividend Yield: This is the percentage of a company’s stock price that is paid out to shareholders in dividends. A high dividend yield could mean that the company is generating a lot of cash flow, while a low dividend yield could mean that the company is not generating a lot of cash flow. NBCC’s dividend yield is 0.79%, which is slightly lower than the industry average of 1.2%.

  • Return on Equity (ROE): This ratio measures the profitability of a company. A high ROE could mean that the company is managing its assets efficiently, while a low ROE could mean that the company is not managing its assets efficiently. NBCC’s ROE is 19.0%, which is higher than the industry average of 14.5%.

WHETHER CMP IS MORE OR LESS THAN 50 DMA AND 200 DMA:

  • 50 DMA: NBCC’s current price (CMP) is ₹68.00, which is below its 50-day moving average (50 DMA) of ₹72.20. This could mean that the stock is in a downtrend.
  • 200 DMA: NBCC’s CMP is also below its 200-day moving average (200 DMA) of ₹74.40. This could also mean that the stock is in a downtrend.

IS THIS STOCK OVERVALUED OR UNDERVALUED?:

Based on the P/E ratio, book value, and ROE, NBCC’s stock could be considered slightly overvalued. However, the company’s strong track record of execution and its healthy balance sheet could suggest that the stock is worth the premium.

SHOULD WE BUY THIS STOCK AND WHY?:

NBCC is a fundamentally strong company with a diversified portfolio of projects. The Company has a strong track record of execution and is known for its quality and timely completion of projects. NBCC is a debt-free company with a strong balance sheet. The Company has a healthy dividend payout ratio and is a good long-term investment option. However, investors should be aware that the stock is currently in a downtrend.

SHOULD WE SELL THIS STOCK AND WHY?:

Investors who are concerned about the stock’s downtrend may want to consider selling their shares. However, investors who have a long-term investment horizon may want to hold their shares, as NBCC is a fundamentally strong company with a bright future.

HOW IS THE INDUSTRY OF THIS COMPANY GROWING?:

The construction industry in India is expected to grow at a CAGR of 11% over the next five years. This growth is being driven by factors such as urbanization, infrastructure development, and government spending. NBCC is well-positioned to benefit from this growth, as it is one of the leading construction companies in India.

HOW THIS COMPANY IS GOING TO PERFORM LONG TERM:

NBCC is a fundamentally strong company with a diversified portfolio of projects. The Company has a strong track record of execution and is known for its quality and timely completion of projects. NBCC is a debt-free company with a strong balance sheet. The Company has a healthy dividend payout ratio and is a good long-term investment option.

Overall, NBCC is a good long-term investment option for investors who are looking for a diversified and financially sound company with a strong track record of execution. However, investors should be aware of the stock’s current downtrend and should be prepared for the possibility of further volatility.

Here are some of the key factors that could influence NBCC’s stock price in the future:

  • The overall health of the Indian economy: The construction industry is closely tied to the overall health of the Indian economy. If the economy grows, then the demand for construction services will increase, which could boost NBCC’s profitability.

  • Government spending on infrastructure projects: The government is a major source of demand for construction services. If the government increases its spending on infrastructure projects, then NBCC is likely to benefit from this increased demand.

  • Competition in the construction industry: The construction industry is highly competitive. If NBCC can maintain its competitive edge and continue to deliver high-quality projects on time and within budget, then it is well-positioned to succeed in the long term.

  • Interest rates: Interest rates affect the cost of borrowing money, which can have a significant impact on the profitability of construction companies. If interest rates rise, then it will become more expensive for NBCC to borrow money, which could put pressure on its margins.

By carefully considering these factors, investors can make informed decisions about whether or not to invest in NBCC stock.

Technical Trend: The stock price is trading above both 50 DMA and 200 DMA indicating bullish momentum in the short to medium term.

Growth Prospects: The company has a strong competitive position in the public construction sector with proven project execution capabilities. It is well placed to benefit from large government spending planned towards affordable housing and infrastructure over next decade. This provides revenue visibility and healthy order pipeline.

NBCC stock appears attractive for long-term investors willing to accept rich valuations given the zero debt status, increasing government orders, sector tailwinds and consistent dividend payouts. However, investors with a value buying approach can consider other alternatives in the sector trading at better valuations.

Disclaimer:

The analysis and opinions provided above are for educational and informational purposes only. They should not be construed as specific investment, accounting, legal or tax advice. Individual situations and current events may differ from case to case basis, so readers and viewers are advised to consider analysis that aligns with their portfolio risk, investment goals and unique situation before making any investment or financial decision.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here