NBCC plans to acquire sick PSUs, monetise land bank

New Delhi: NBCC India Ltd. has set its sights on acquiring defunct public sector undertakings (PSUs) to redevelop and monetize their land, according to two people with direct knowledge of the matter, as the state-run construction company seeks to leverage success in developing land for some government-owned companies.

The developer is in talks to acquire non-operational PSUs through a new subsidiary for monetizing their land banks, said the first person in the know, speaking on the condition of anonymity as details are not public yet. The company is in the process of acquiring a Mumbai-based PSU, which is defunct now and has land at key locations in different cities, the person said, without giving details as nothing has been finalized yet.

“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 the person.

The company may also look at becoming an equity partner for PSU land redevelopment in the future, said this person.

NBCC has been developing central government-owned land parcels across India for both commercial and residential purposes for a fee as the profit earned goes back to the centre. The Delhi-based company also acts as a project management consultant for the government's civil construction, earning a small percentage of the project cost as fee.

Also read | NBCC aims to double revenue to ₹25,000 crore by expanding real estate development: CMD Mahadevaswamy

The company's recent projects include residential colonies for Delhi Transport Corporation, a satellite township for Srinagar Development Authority and land development for Kerala State Housing Board.

“Profits earned in the process of acquiring sick PSUs and redeveloping them will add to company’s topline and profits. NBCC will build, develop projects and earn profits,” the person quoted earlier said.

NBCC did not respond to Mint's emailed query.

The plan by NBCC could complement the government’s plan to monetize non-core assets--mainly land--through National Land Monetisation Corporation that was registered in June 2022 as a 100% government-owned company to monetize non-core assets of public sector companies as well as 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, Mint had reported earlier.

Analysts, however, say it will be challenging for NBCC to command a premium when competing with established brands, though it will have some advantage because of being a PSU.

“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, Knight Frank India. “After making all these payments, will creating real estate make sense in the key question here.”

The land parcels given to PSUs are for specific purposes and are for creating job opportunities. When such land is turned into real estate, the market value of such land shoots up. The additional values thus generated are classified as “unearned incomes”. The urban local bodies then ask for a share of such earnings, Zia explained.

Moreover, NBCC will have to compete with private developers with a strong branding and the company's ability to draw a premium against such large companies will be questionable, Zia said. “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?”

NBCC reported revenue from operations worth ₹2,458.73 crore in the second quarter ended September and ₹4,603 crore in the first half of the financial year. It's profit stood at ₹125.13 crore in Q2FY25 and ₹232 crore in the first half.

Also read | DLF’s second going: Can the real estate giant succeed beyond its comfort zone?

To be sure, NBCC may have access to cheaper funds as public sector banks may have special rates for them, which will be an advantage, Zia said. 

If successful though, the acquisition strategy by NBCC could become the preferred model for monetization of assets of sick PSUs.

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 located in West Delhi. The deal is worth ₹1,600 crore. It is now looking at MTNL properties in Mumbai as well as some other states but nothing is finalized yet.

“We are looking to build and sell over a leasing model as it is likely to be more profitable,” the first person quoted earlier told Mint. “The due diligence is on and will be finalized after it is complete.”

Among its other projects are redevelopment of Delhi Transport Corporation's bus depots at Harinagar & Vasant Vihar, New Delhi; and residential colonies at Harinagar & Shadipur, New Delhi at a cost of about ₹2,000 crore. It's also developing three colonies in Delhi's Sarojini Nagar, Netaji Nagar and Narouji Nagar at an estimated cost of about ₹24000 crore.

Among other projects, NBCC is building a satellite township at Rakh-Gund-Aksha, Bemina, Srinagar for the Srinagar Development Authority in a project worth about ₹15,000 crore. The company has also taken on a project to develop and monetize a land parcel of Kerala State Housing Board, Kerala for ₹2,000 crore.

Also read | Land purchases, joint development deals soar amid booming real estate demand

“I think it (looking to acquire sick PSUs with a land bank) is a good strategy because NBCC definitely has expertise in construction,” said Prashant Thakur, head of research and advisory at property consultant 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 because it will be a way forward in their divestment plan or monetization of their stock, Thakur said. “NBCC will [also] get access to prime land parcels within city limit.”