NBCC
NBCC is the best PSU bet in the three verticals of project management consultancy (PMC-82%), EPC (2%) and real estate (16%) business. The order book is swelling; the current order book for PMC, EPC and redevelopment orders amounts to R20,000 crore, which is 5x FY14 sales. NBCC has its own real estate development business, which is not included in the order book.
It has a land bank of +150 acre and the contribution from the segment is expected to rise over the next two years. The company has clean books and high return ratios. It has a negative working capital cycle, which has led to huge cash balance of R1,000 crore and zero debts. NBCC had RoEs of +24% in the last 3 years and the future looks even more promising. Divestment is a key risk. We value the stock at 15x P/E on FY16E EPS of R38. Over the last two weeks, the stock has moved past our target price of R571. But we are positively biased on long-term potential. Accumulate.
Capital First
CAPF transformed its business model by streamlining focus towards retail finance, which delivered robust loan growth and interest income in FY10-14 even in a sluggish economy. The loan book grew at 48% CAGR with retail loans growing 200%, wholesale 21% and net interest income at 58% CAGR.
Retail-wholesale loan mix stands at 80:20 vs 10:90 in FY10. Loan asset has 30% CAGR potential in FY14-16E as the underpenetrated SME financing segment and other retail loan products provide scalability. The licence for housing finance will influence loan momentum. Asset quality is attractive with GNPA & NNPA of 0.54% & 0.09%, which improved 320 bps & 150 bps, respectively, since FY10. Recent equity dilution drags the book value growth of 8% and FY16E ROE of 11%, but will reflect the high earnings growth after further expansion in the next 3-4 years. This give a case for re-rating. We value the company at 2x FY16E P/B with a target price of R329. Maintain accumulate.
The CV segment contributes ~80% of Banco’s domestic revenue and, if volumes pick up as expected in H2FY15, the company?s top line is likely to grow at 17.7% and 22% in FY15E and FY16E, respectively. Subsidiaries contribute 60% of the consolidated revenue of BPIL and have grown at 21% CAGR over the past 3 years. Their margins are improving constantly, which directly reflects in the RoE, which has improved to 17.5% in FY14. We expect the subsidiaries to grow at 20% CAGR for the next couple of years.
BPIL has divested its entire stake in Lake Cement for $17.7 million, a premium of 52% to cost.The proceeds will likely be used for investment in core business in Europe. Most of the negatives have been factored in to the stock price. We factor in a CAGR of 23% in earnings during FY14-16E with the revival in auto industry. If industry volumes regain growth, valuations could move up substantially. Buy, target price R171.
Vinod Nair
head, fundamental research, Geojit BNP Paribas
