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The share price of Government-owned National Building Construction Company (NBCC) has been scaling new highs this week. The stock rose 3 per cent today. It recorded gains of similar magnitude on Tuesday and Wednesday too. There are three reasons that can account for this up-move.
The primary reason is that the company signed an MoU with Air India to develop Air India’s real estate in various locations on a joint venture basis. The distressed carrier has been trying to sell its real estate assets to pay down its debts over two years. Partnering with NBCC will help both parties unlock more value from Air India’s land, totalling nearly 8 million sq. ft., spread across the country,
Also, the company will benefit from the New Delhi government’s move last week to hike the floor area ratio (FAR) of a building's constructed area to the size of land. The ratio was increased from 150 per cent to 200 per cent for residential plots over 750 sq m and from 120 per cent to 200 per cent for plots over 1000 sq m. This is likely to boost the saleable area and revenue for new projects in the region.
Margins are higher in the development segment and hence the land deal and FAR increase should boost earnings growth in the long term. NBCC derives the bulk of its income from its advisory business. Earlier, on Tuesday, the company won a road construction order for Rs 1,850 crore in Arunachal Pradesh. The company had formed a subsidiary, NBCC Services, to provide maintenance services after construction. The services segment should help boost margins.
The company is likely to be a key beneficiary from higher Government spending and partnerships with public sector units with land assets. NBCC has a track record of successful project delivery and holds the status of being the default consultant for construction projects in various Ministries such as Defence and Home Affairs. These factors have helped boost investor sentiment in the NBCC stock, which is up over five-fold from its March 2014 low of ₹152.
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