National Bldg. Construction Corpn. (NBCC) is entering the capital market on 22^nd March 2012, with a public issue of 1.20 crore equity shares of Rs. 10 each, in the price band of Rs. 90 to Rs. 106 per share. Issue will  close on 27^th March and size will be of Rs. 108 crore to Rs. 127 crores.

One fails to understand the logic of taking this company public. Whether the intent of the Govt., is its listing or mobilize funds of Rs. 127 Cr. (at the upper band) to meet its divestment target. Why dilution of 25% to 40% not contemplated by the Govt?

This is a 100% Central Govt. PSU engaged in the Project Management Consultancy for civil construction project, Civil Infra for power sector and Real Estate Development. This segment has been getting crowded with so many private sector companies coming into this integrated business models viz. NCL, IVRCL, Lanco Infra, Ramky Infra etc. Due to this, all these companies are having very low PE multiple of 3 to 8 times on the bourses.

Order book of the company as at 31-1-12 is at Rs. 10,614 Crores, with 7 ongoing and 12 forthcoming real estate projects. For FY 11, total income of the company was placed at Rs. 3,200 Crores, with PAT at Rs. 140 Crores, resulting in a PAT margin of 4.40% with an EPS of Rs. 12. Inspite of the company being debt free, it has interest burden of Rs. 4 crores for  FY 11. Due to insignificant Net Block of Rs. 24 Crores with the company, even depreciation for FY 11 is quite low at Rs. 3 Crores. Hence, even cash PAT and Cash EPS is almost same, as that of prevailing at the net level.

For six months ending Sept. 11 total income was placed at Rs. 1,350 crores with PAT at Rs. 75 crores, resulting   in a PAT margin of 5.55 %. Strangely interest burden is at Rs. 7.30 crores with depreciation of Rs. 1 Crore only.

As at 30-9-11, total equity of the company was at Rs. 120 crores, with net worth at Rs. 728 crores, resulting in a book value per share at Rs. 60. Management of current assets and current liabilities, look to be very poor, as for the last 5 years, the company had cash balances of Rs. 750 crores to Rs. 1,350 crores. On the other hand, current liabilities stood at Rs. 1,400 crores to Rs. 2,400 crores. So, inspite of cash bank balances of Rs. 1,368 crores on 30-9-11, net current assets are at Rs. 570 crores only.

Issue looks to be quite dull with falling trend of profitability. NPM which was at 13.90 % in FY 08, fell to 4.40 % in FY 11. Share at the lower band of Rs. 90, is issued at a PE multiple of 7 times and at 8 times at the upper and lower band. This looks expensive, as comparative players are available at a PE of 4 to 6 times. Discount of 5% to retail and employee can give some cushion to those class of investors.

 Even if you give a pass to this IPO, nothing to loose.