| NBCC (India) Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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 an improvement in the overall financial risk profile of NBCC, driven by healthy execution of high-margin redevelopment projects and better cost absorption along with strong capital structure. Business performance is expected to sustain in fiscal 2024, revenue to grow at ~10% with operating margins to remain range bound at 3-4% led by steady order pipeline and pick up in the pace of key large projects. The financial risk profile remains strong as supported by debt-free position with no plans to take any debt in the future as well. The capital structure continues to be healthy in fiscal 2024 too, with high cash accrual and nil debt. Cash accrual is projected at above Rs 200 crore per annum against nil debt obligation over the medium term. Financial flexibility is largely supported by negative working capital cycle and unencumbered cash and equivalents of Rs 650 crore as on March 31, 2023.
The rating 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 45,000 crore as on May 01, 2023), 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 a back-to-back arrangement, which reduces working capital requirement as it can pass on the delays in debtor 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 risk 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 all its subsidiaries, except NBCC-RK Millen, 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:
NBCC, a Navratna PSU, was incorporated in 1960 for undertaking projects 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 and Pradhan Mantri Gram Sadak Yojana. 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 32,000 crore. As these projects fetch higher margin, NBCC has undertaken more projects in the redevelopment segment in fiscal 2023 and will continue doing so in the future as well. The overall order book as on May 01, 2023, was Rs 45,000 crore, with order book-to-revenue ratio of 5.2 times, providing healthy revenue visibility over the medium term. Of the total order book, 49% constitutes towards PMC redevelopment projects and rest comprises PMC regular contracts and EPC contracts. About Rs 20,000 crore worth orders are under execution and Rs 8,000-10,000 crore projects are in the tendering phase. Thus, revenue growth will be above ~10% and cash accrual more than Rs 200 crore over the medium term.
The company has healthy capital structure with no external debt on its books, leading to low financial charges (only financial charges being commissions on bank guarantees). Liquidity was strong with cash and bank balance of ~ Rs 5,500 crore as on March 31, 2023. 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 650 crore at a consolidated level as on March 31, 2023. NBCC is expected to generate cash accrual more than Rs 200 crore per annum for the next few fiscals against which it does not have any debt obligation. 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 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, generating sizeable non-operating cash flow.
Weaknesses:
The operating margin has fluctuated in the past few fiscals owing to lower operating income due to stuck projects while overheads (in the form of salaries, etc) remained high. Additionally, margins on PMC contracts reduced to 5-7% as compared to 7-10% earlier. However, operating performance improved in fiscal 2023 due to boost in order execution and better cost absorption. The operating margins are likely to remain range bound at 3-4% over the medium term on the back of healthy execution of high-margin redevelopment projects and better cost absorption. The sizeable order book position (~Rs 45,000 crore as on May 01, 2023), also provides medium-term revenue visibility, though ramp up in execution remains a monitorable.
NBCC is exposed to execution risks as most of the projects in its current order book are yet to start. The sector is also subject to cyclicality as it is dependent on economic growth. Due 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. Due to this, the company is exposed to the liquidity risk that may arise out of these contingent liabilities. |
Liquidity: Strong Cash and cash equivalent were substantial at Rs 5,500 crore as on March 31, 2023, of which around Rs 650 crore is unencumbered. The company has nil debt and does not plan to take 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
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, 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)
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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 | ||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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