Detailed Rationale CRISIL Ratings' rating on the long-term bank facilities of NBCC (India) Limited (NBCC) continues to reflect healthy order book, diversified revenue profile, and benefits derived from being part of the public works organization (PWO) and ‘Navratna’ company. These rating strengths are backed by debt-free position coupled with back-to-back subcontracting, thereby leading to a sustainable profitability margin. However, NBCC remains exposed to risk directed by irregular execution cycle and overhang of real – estate supply caused due to economic correction led by the on-going pandemic.
On May 26th, 2022, CRISIL Ratings had revised the outlook on long term bank facilities of NBCC to ‘Stable’ from ‘Negative’ and reaffirmed the rating at ‘CRISIL AA ‘.
The outlook revision reflects expectation of stable operating profitability of 3 - 4% in the medium term after moderation in operating margin observed in the recent past in fiscal 2020 and 2021. Operating margin for nine months ended December 31, 2021, improved to ~ 4.8% on account of normalization of execution cycle across business domains and healthy order book position. Revenue is expected to grow at 6 – 7% in the medium term on the back of healthy order book, execution of key large projects while operating profitability to remain at 3 – 4% in the medium term.
Financial risk profile of the company is strong, supported by debt-free position. There are no plans to take any debt in future. Financial flexibility is largely supported by NBCC’s negative working capital cycle and unencumbered cash and equivalents of Rs 500 crore as on December 31, 2021.
The rating continues to reflect the company’s strong market position in the project management consultancy (PMC) segment and its robust financial risk profile. These strengths are partially offset by modest operating profitability and exposure to risks related to salability of real estate projects.
In lieu of parameters stated above, we expect a healthy credit health of the company. However, the company’s ability to maintain operational stability is a key monitorable.
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Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of NBCC and all its subsidiaries, except NBCC-RK Millen, HSCL-SIPL and Jamal NBCC International (PTY) Ltd as these companies do not have any transactions and NBCC has already provided for their losses.
Please refer Annexure – List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Strong market position in the PMC segment: The company’s status as a public works organisation (PWO) and ‘Navratna’ company, enables it to secure orders from central and state government organisations on a nomination basis, rather than through competitive bidding. Focus on quality and timely execution of projects ensure repeat orders. NBCC is also designated as an implementing agency for several government schemes such as Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Pradhan Mantri Gram Sadak Yojana (PMGSY). Following the successful implementation of the Moti Bagh and East Kidwai Nagar projects in Delhi, it is now redeveloping projects in Nauroji Nagar, Netaji Nagar and Sarojini Nagar valued at around Rs 24,682 crore. As these projects fetch higher margin, NBCC may undertake more projects in the future. The overall order book as on February 1, 2022, was Approx. INR 55,000 crore, with order book-to-revenue ratio of 7.5 times, providing healthy revenue visibility over the medium term. Of the total order book, 54% constitutes towards PMC redevelopment projects and rest comprises as PMC regular contracts coupled with EPC contracts. Approx. 16,500 crore worth orders are currently under execution and Rs 2,500 crore projects are currently under tendering. Based on the above outlook, CRISIL believes revenue growth will be within a range of 6 – 7% in the medium term
Robust financial risk profile: Financial risk profile is aided by a strong capital structure and adequate liquidity. Liquidity was strong with cash and bank balance of Rs 4,900 crore as on December 31, 2021. Though most of the cash is earmarked for specific projects and cannot be used for other purposes, the company maintains healthy unencumbered cash balance of over Rs 500 crore at a consolidated level as on December 31, 2021. NBCC is expected to generate a cash accrual of Rs 150 – 200 crore per annum for the next few fiscals against which it does not have any debt obligations; Despite being in the highly working capital-intensive construction space, the working capital cycle has been moderate, as the business model entails execution of PMC projects against customer advances. NBCC transfer most of the risks with respect to execution, cost pass-through, etc. to sub-contractors through back-to-back arrangements and bank guarantees. This also leads to sizeable liquid surplus, generating sizeable non-operating cash flow.
Weakness: Modest operating profitability: Operating margins have been declining over the past few fiscals on account of lower operating income due to stuck projects while overheads in the form of salaries, etc., remaining high. Additionally margins on PMC contracts have reduced to 5-7% as compared to 7-10% earlier. Operating margin for the 9 months ended December 31, 2021 witnessed a gradual Q-o-Q movement growth, however, owing to 3rd wave impact, Q3 growth was subdued at 1.38% (Q-o-Q), Nonetheless, operating margin is expected to grow at 2.4% in FY 2022 supported by healthy order execution increment in the revenue from PMC business q-o-q. Margins were also supported by strong sales in the group’s real estate business, wherein most of the projects are complete and cost have incurred. While margins are expected to improve further going forward supported by healthy execution of the order book, specifically high-margin redevelopment projects, they remain monitorable.
Exposure to risks related to salability of real estate projects: Salability and implementation risks in the real estate sector persist, as reflected by delayed requisite approval coupled with skeptical buying behavior by consumer owing to pandemic led sharp fluctuation in incomes. Gauging the weak demand scenario, the company is bearish in monetizing land parcel over the next few fiscals. There was a slowdown in real estate sales in the first six months of fiscal 2022, but the company witnessed healthy recovery in the third quarter of fiscal 2022 supported by healthy salability in redevelopment projects. |
Liquidity Strong Cash and cash equivalent were substantial at Rs 4,900 crore as on December 31, 2021, of which around Rs 500 crore is unencumbered. The company has nil debt and does not have any plans to contract debt in the near term. The policy of executing projects against customer advances, which is also followed for real estate and redevelopment projects, should keep liquidity comfortable. |
Outlook: Stable CRISIL Ratings believes the credit risk profile remain stable with normalisation in overall economic improvement and pick up in overall execution cycle. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Incorporated in 1960, NBCC is a central government enterprise under the Ministry of Urban Development and is a Schedule A Navratna company. It was set up as a PMC to undertake civil and industrial infrastructure projects for central and state governments. Under this arrangement, projects are awarded on a nomination basis to NBCC, and the company assigns the projects to third-party contractors. The company also secures jobs from the government and public sector clients through tenders and develops commercial and residential projects. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 200 | Axis Bank Limited | CRISIL AA/Stable |
| Bank Guarantee | 100 | HDFC Bank Limited | CRISIL AA/Stable |
| Bank Guarantee | 100 | ICICI Bank Limited | CRISIL AA/Stable |
| Bank Guarantee | 600 | IndusInd Bank Limited | CRISIL AA/Stable |
| Bank Guarantee | 100 | Punjab National Bank | CRISIL AA/Stable |
| Bank Guarantee | 150 | State Bank of India | CRISIL AA/Stable |
| Bank Guarantee | 65 | State Bank of India | CRISIL AA/Stable |
| Bank Guarantee | 200 | Union Bank of India | CRISIL AA/Stable |
| Bank Guarantee | 35 | Union Bank of India | CRISIL AA/Stable |
| Bank Guarantee | 200 | YES Bank Limited | CRISIL AA/Stable |
This Annexure has been updated on 12-Apr-2023 in line with the lender-wise facility details as on 05-Apr-2023 received from the rated entity.
Criteria Details
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