NBCC Share Price Jumps 18% on Potential Bonus Announcement: 4 Factors Driving the Surge

Yesterday, NBCC investors were treated to a thrilling surprise, sending the stock price soaring by a remarkable 18%. The dramatic move was fueled by a simple announcement: the company’s potential issuance of bonus shares. This unexpected development caught the market off guard, sparking a wave of buying interest and propelling NBCC’s share price to a new all-time high of ₹209.75.

Share Price has surged 151% this year

The share price of NBCC (India) Limited, formerly known as National Buildings Construction Corporation, has had a stellar performance. It rewarded shareholders with a return of 79% in the first half of 2024 and a total return of 219% from June 2023 to June 2024. Since its low point in April 2020 at ₹15.90 per share, the stock has surged by a remarkable 1126.42%. In 2024 alone, the stock has significantly increased 151%, climbing from ₹82 to ₹206.

Top 4 Reasons Behind the Surge

1. Anticipated Bonus Share Announcement

NBCC (India) Limited is scheduled to hold a meeting of its Board of Directors on Saturday, August 31, 2024. The primary purpose of this meeting is to consider and potentially approve a proposal for issuing bonus shares to the company’s equity shareholders. According to Trendlyne data, this would be NBCC’s second issuance of bonus shares. The company previously issued bonus shares in a 1:2 ratio back in 2017. 

What are Bonus Shares?

Bonus shares are essentially additional shares issued by a company to its existing shareholders at no extra cost. It’s like getting a freebie! However, there’s a catch: the overall value of your investment remains the same. The share price adjusts to reflect the increased number of shares. So, while you might have more shares, each share becomes worth less.

So, why do investors love bonus shares?

It’s all about liquidity. With more shares in circulation, buying or selling your holdings becomes easier. This can lead to increased trading activity and potentially higher market prices.

For example:

Let’s say you hold 50 shares of Company A, which is trading at Rs. 100. Now, it has decided to give you 1 bonus share for each share you hold. Now, since you have 50 shares, you will have 100 shares. However, the share price will halve from Rs.100 to Rs.50.

You might still wonder how it is beneficial, right? Although your net investment remains the same, you now have more shares. As a result, the ‘liquidity’ in the stock rises. You now have more shares in your kitty to either buy or sell. That way, you find buyers or sellers for your shares relatively easier than before. 

2. Consistent Performance

NBCC’s Core Business: Established in 1960, NBCC is a leading construction company with expertise in project management consultancy, real estate development, and EPC contracting. Its real estate portfolio includes residential and commercial projects. The company has recently secured many new contracts, demonstrating its strong construction and development market position.

Key contract wins:

• Haryana contract: In mid-August, NBCC’s wholly-owned subsidiary, HSCC (India), secured a contract worth ₹5.28 billion from the Directorate of Medical Education & Research, Haryana.
• Hyderabad and Jhansi projects: The company also won two contracts in the second week of August, totaling ₹720 crore. These projects include constructing a new chapter for the Institute of Company Secretaries of India in Hyderabad and developing two land parcels for the Jhansi Development Authority.
• Srinagar satellite township: NBCC has been awarded a substantial ₹15,000 crore contract from the Srinagar Development Authority to develop a 406-acre satellite township in Srinagar, Jammu and Kashmir.

Growth in contract awards:

On a consolidated basis, NBCC awarded works worth approximately ₹9,800 crore for different projects during the 2023–2024 fiscal year, compared to ₹6,050 crore the previous year. This represents a significant growth of about 62%.

Other recent contracts:

• CGHS healthcare complex: In June, NBCC secured a ₹112 crore order from the Central Government Health Scheme (CGHS) to construct a multi-facility healthcare complex.
• Odisha Infrastructure Complex: The company also won a ₹73.27 crore order from the Department of Social Security and Empowerment of Persons with Disabilities to construct the Infrastructure Complex (IIC) in Bargarh District, Odisha.

3. Diversification and Growth

NBCC is looking to expand its horizons beyond its core business of project management consultancy, real estate development, and EPC contracting. The company is now exploring opportunities in other infrastructure segments such as roads and highways, railways (station redevelopment), metro, water supply and irrigation, solar, etc. 

In FY24, NBCC diversified into the agri-infrastructure sector by building grain storage under the ‘World’s Largest Grain Storage Plan’, with an approximate value of ₹1,500 crore. It has also signed MoUs with BHEL (land monetization), HUDCO, DMRC, and the Institute of Company Secretaries of India (ICSI). This diversification strategy can open up new avenues for growth and reduce reliance on any single business segment.

4. Strong Financial Track Record

NBCC’s financial health has been equally impressive. In the recent March quarter (Q4FY24), the company’s net profit soared by 26% year-on-year to ₹136.08 crore, and its income from operations grew by 43% to ₹4,024.5 crore. For the entire fiscal year 2023-2024, net profit jumped 50% to ₹401.55 crore, and income from operations increased by 17% to ₹10,432.63 crore. 

The positive momentum continued into the June quarter (Q1 FY25), with net profit rising by 39% to ₹107 crore and income from operations increasing by 12% to ₹2,144 crore from ₹1,918 in Q1FY24.  While revenues declined sequentially in Q1 FY25, the company’s overall financial performance remains strong, indicating a healthy trajectory for future growth.

In conclusion, NBCC’s recent share price increase is influenced by several factors. The anticipated bonus share issuance, combined with the company’s strong operational performance, financial stability, and diversification efforts, has contributed to investor interest. However, potential investors should conduct their due diligence and consider their individual financial circumstances before making investment decisions.

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