NBCC Eyes Acquisition of Defunct PSUs to Redevelop and Monetize Land Banks
NBCC India Ltd. is planning to acquire defunct public sector undertakings (PSUs) to redevelop and monetize their land, leveraging its expertise in construction and project management. This move aligns with the government’s plan to monetize non-core assets
Real EstateNbccPsusLand BankMonetizationReal Estate MumbaiNov 26, 2024
“Depending on the potential of the land, the company will decide on whether to develop it as commercial or residential. The company is in discussions with government bodies at this stage,” said a source, speaking on condition of anonymity. The company may also consider becoming an equity partner for PSU land redevelopment in the future.
NBCC has a history of developing central government-owned land parcels across India for both commercial and residential purposes. The Delhi-based company also acts as a project management consultant for the government’s civil construction projects, earning a small percentage of the project cost as a fee. Some of its recent projects include residential colonies for the Delhi Transport Corporation, a satellite township for the Srinagar Development Authority, and land development for the Kerala State Housing Board.
“Profits earned in the process of acquiring sick PSUs and redeveloping them will add to the company’s topline and profits. NBCC will build, develop projects, and earn profits,” the source added. However, NBCC did not respond to queries regarding this plan.
The move by NBCC complements the government’s initiative to monetize non-core assets, particularly land, through the National Land Monetisation Corporation. Registered in June 2022, this 100% government-owned company aims to monetize non-core assets of public sector companies and other government agencies. It is estimated that public sector companies have nearly 3,400 acres of land and other non-core assets that will be monetized.
Analysts, however, highlight the challenges NBCC may face. “The biggest challenge will be how the land will be bought or the real estate is developed, as every such transfer of company land or real estate has the concept of unearned earnings which need to be shared with the local government,” said Gulam Zia, senior executive director at Knight Frank India. When such land is turned into real estate, the market value increases, and the additional value generated is classified as 'unearned incomes'. Urban local bodies then ask for a share of these earnings, Zia explained.
Moreover, NBCC will have to compete with private developers who have strong branding and the ability to draw a premium. “Another thing NBCC has to consider is the balance sheets and profit and loss statements of a PSU. How much of losses are they carrying?” Zia added.
Despite these challenges, NBCC reported a revenue of ₹2,458.73 crore in the second quarter ended September and ₹4,603 crore in the first half of the financial year. Its profit stood at ₹125.13 crore in Q2FY25 and ₹232 crore in the first half. Public sector banks may offer special rates to NBCC, providing it with an advantage in securing cheaper funds.
NBCC has already signed memorandums of understanding with Mahanagar Telephone Nigam Ltd. (MTNL) and Bharat Heavy Electrical Limited (BHEL) to develop their land banks. The company is developing a housing-cum-commercial project on MTNL's 13.88-acre land parcel in West Delhi, a project valued at ₹1,600 crore. It is also exploring MTNL properties in Mumbai and other states.
“We are looking to build and sell over a leasing model as it is likely to be more profitable. The due diligence is ongoing and will be finalized once complete,” the source said. Other ongoing projects include the redevelopment of Delhi Transport Corporation’s bus depots in Harinagar and Vasant Vihar, New Delhi, and residential colonies in Harinagar and Shadipur, New Delhi, at a cost of about ₹2,000 crore. The company is also developing three colonies in Delhi’s Sarojini Nagar, Netaji Nagar, and Narouji Nagar at an estimated cost of about ₹24,000 crore.
In addition, NBCC is building a satellite township at Rakh-Gund-Aksha, Bemina, Srinagar, for the Srinagar Development Authority, a project worth about ₹15,000 crore. It is also developing and monetizing a land parcel of the Kerala State Housing Board, Kerala, for ₹2,000 crore.
“I think it (looking to acquire sick PSUs with a land bank) is a good strategy because NBCC has expertise in construction,” said Prashant Thakur, head of research and advisory at Anarock Group. “They don’t have expertise in selling, so building and leasing it out would seem to be a good strategy. The government would definitely benefit from this as it will be a way forward in their divestment plan or monetization of their stock. NBCC will [also] get access to prime land parcels within city limits,” Thakur concluded.
Frequently Asked Questions
What is NBCC's plan regarding defunct PSUs?
NBCC is planning to acquire defunct public sector undertakings (PSUs) to redevelop and monetize their land. This includes developing the land for residential or commercial purposes.
Why is NBCC considering this move?
The move is part of NBCC's strategy to leverage its expertise in construction and project management to increase its revenue and profits. It also aligns with the government’s plan to monetize non-core assets.
What are some of the challenges NBCC may face?
NBCC may face challenges such as sharing unearned earnings with local governments, competing with established private developers, and dealing with PSUs’ financial losses.
What are some of NBCC's recent projects?
NBCC has been involved in projects such as developing residential colonies for the Delhi Transport Corporation, a satellite township for the Srinagar Development Authority, and land development for the Kerala State Housing Board.
How does this plan benefit the government?
The government stands to benefit from this plan as it aligns with their divestment and monetization initiatives. It will also provide access to prime land parcels within city limits for NBCC.
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