Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the long-term bank facilities of NBCC (India) Limited (NBCC).

 

The rating continues to reflect the healthy financial risk profile of the company, driven by execution of high-margin redevelopment projects, better cost absorption and strong capital structure. Business performance is expected to sustain in fiscal 2025, with revenue to grow ~30% and operating margin to remain range-bound at 4-5% led by steady order pipeline and pick up in pace of key large projects. The financial risk profile was strong supported by the company’s debt-free position, with no plans to undertake any debt. Capital structure continued to be healthy in fiscal 2024, with high cash accrual and nil debt. Cash accrual is projected above Rs 550 crore per annum against nil debt obligation over the medium term. Financial flexibility is supported by negative working capital cycle and unencumbered cash and equivalent of Rs 700 crore as on March 31, 2024.

 

The rating also takes into account the long track record of NBCC in the construction and project management business as well as its sizeable order book position (~Rs 54,200 crore as on July 1, 2024 at standalone level), which provides medium-term revenue visibility, though ramp up in execution remains monitorable. The rating also takes comfort from strong market position and long track record in the project management consultancy (PMC) segment and its status as a Schedule A Navratna company, due to ownership by the Government of India under the administrative control of Ministry of Urban Development. NBCC subcontracts work in back-to-back arrangement, which reduces working capital requirement as it can pass on delays in realisation by extending payments to subcontractors. These strengths are partially offset by modest operating profitability, and exposure to execution risk, as most of the projects are yet to start, and risks related to contingent liabilities.

 

In lieu of parameters stated above, credit health of the company should remain strong. However, the ability to maintain operational stability is a key monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of NBCC and its subsidiaries, except NBCC-RK Millen and HSCL-SIPL, as these entities 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:

Public sector undertaking (PSU) track record and strong market position in the PMC segment

NBCC, a Navratna PSU, was incorporated in 1960 for undertaking projects from central and state government organisations on a nomination basis, as well as through competitive bidding. Focus on quality and timely execution of projects ensures repeat orders. NBCC is also designated as an implementing agency for several government schemes, such as Jawaharlal Nehru National Urban Renewal Mission and Pradhan Mantri Gram Sadak Yojana. The company has recently completed the World Trade Center, Nauroji Nagar, project valued at around Rs 2,700 crores after successful implementation of the Moti Bagh, East Kidwai Nagar and Nauroji Nagar projects in Delhi. It is now executing redevelopment projects in Netaji Nagar and Sarojini Nagar worth Rs 22,000 crore. Inventory has been completely sold in the World Trade Center, Nauroji Nagar and Downtown, Sarojini Nagar projects. As these projects fetch higher margins, NBCC has undertaken more projects in the redevelopment segment in fiscal 2024 and will continue to do so. NBCC has completed around 21,000 units out of 38,000 units of the ongoing Amrapali project and intimated to office of Ld Court Receiver for handing over process. The remaining 17,000 units will be completed by June 2025. The company has received an additional order of Rs 10,000 crore in Amrapali projects, which is to be executed from fiscal 2026. As on July 1, 2024, the order book stood at Rs 54,200 crore at standalone level, with order book to revenue ratio of 5.25 times, providing healthy medium-term revenue visibility. In addition to the mentioned order book, the company has recently been awarded work order of Rs. 15,000 cr. by Srinagar Development Authority for development of Satellite Township spread over 406 acres in Srinagar, Jammu and Kashmir. Of the total order book, 40% consists of PMC redevelopment projects and the balance comprises PMC regular contracts and engineering, procurement and construction (EPC) contracts. The company was awarded contracts worth Rs 23,500 crore in fiscal 2024 and project tender worth ~Rs 10,000 crore during fiscal 2024. Orders worth Rs 20,000 crore are under execution and projects of Rs 12,000-15,000 crore are in the tendering phase. Thus, revenue growth will be above 28% and cash accrual more than Rs 550 crore over the medium term.

 

Negligible borrowing and strong liquidity

The company has a healthy capital structure with no external debt leading to low financial charges (only financial charges being commissions on bank guarantees). Liquidity was strong with cash and bank balance of ~Rs 5,700 crore as on March 31, 2024. Though most of the cash is earmarked for specific projects and cannot be used for other purposes, the company had unencumbered cash balance over Rs 700 crore as on March 31, 2024, on consolidated basis. NBCC is expected to generate cash accrual more than Rs 550 crore per annum for the next few fiscals against no debt obligation. Despite being in the highly working capital-intensive construction industry, the working capital cycle has been moderate as the business model entails execution of PMC projects against customer advances. NBCC transfers most of the risks with respect to execution and cost pass-through to sub-contractors through back-to-back arrangements and bank guarantees. This also leads to sizeable liquid surplus and non-operating cash flow. 

 

Weaknesses:

Modest operating profitability

Operating margin fluctuated in the past few fiscals owing to lower operating income due to stuck projects while overheads (like in the form of salaries) remained high. Additionally, margin on PMC contracts reduced to 5-8% from 7-10%. However, operating performance improved in fiscal 2024 owing to boost in order execution and better cost absorption. The operating margin is expected to remain range-bound at 4-5% over the medium term backed by healthy execution of high-margin redevelopment projects and better cost absorption. Sizeable order book position (~Rs 54,200 crore as on July 1, 2024 at standalone level) also provides medium-term revenue visibility, though ramp up in execution remains monitorable.

 

Exposure to execution risk and risks related to contingent liabilities

NBCC is exposed to execution risk as most of its projects in its current order book are yet to start. The sector is subject to cyclicality as it is dependent on economic growth. Owing to the nature of business, NBCC has sizeable off-balance sheet liabilities, primarily claims pending from clients as well as bank guarantees given to clients. Consequently, the company is exposed to liquidity risk which may arise out of the contingent liabilities.

Liquidity: Strong

Cash and equivalent was sizeable at Rs 5,700 crore as on March 31, 2024, of which around Rs 700 crore was unencumbered. The company has nil debt and does not plan to undertake 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

NBCC will continue to benefit from its sizeable order book, zero debt and strong liquidity.

Rating Sensitivity Factors

Upward Factors

• Cash accrual over Rs 650 crore backed by healthy and diversified order book, timely execution of redevelopment projects and operating margin of 5.5-6.0% on a sustained basis while maintaining working capital cycle
• Sustained growth in orders providing medium-term revenue visibility
• Sustenance of financial risk profile and cash surplus

 

Downward Factors

• Operating profit before depreciation, interest and tax margin remaining below 2% on sustained basis
• Weakening of business risk profile because of lower order inflow or slow pace of execution
• Weakening of capital structure or increase in working capital intensity

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, which then 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)

Particulars	Unit	2024	2023*
Revenue	Rs crore	10,328	8,770
Profit after tax (PAT)	Rs crore	414	278
PAT margin	%	4.00	3.17
Adjusted gearing	Times	0.0	0.0
Interest coverage	Times	191.5	81.38

*The numbers have been reinstated as on March 31, 2024

Any other information: Not Applicable