BigBloc Construction Ltd: A hidden gem small cap to watch out

BigBloc Construction Limited, a burgeoning force in the Indian AAC (Aerated Autoclave Concrete) block manufacturing sector, is quietly making waves with its robust capacity of 8,25,000 cubic meters per annum. Operating across cutting-edge facilities in Vapi, Ahmedabad, and Palghar, the company has carved a niche for itself under the brand name NXTBLOC. Positioned as a leading manufacturer of sustainable and eco-friendly building materials, BigBloc is set to capture the attention of investors seeking potential growth in the small-cap segment.

Competitive Edge

The management at BigBloc Construction Management has strategically navigated the challenges of entering the AAC block market, distinguishing the company from competitors. While major players faced hurdles, BigBloc’s new Wada plant, boasting a 5-lakh cubic meter capacity, stands as a testament to the company’s modern, efficient, and larger-scale operations. This strategic advantage not only emphasizes economies of scale but also acts as a barrier for potential entrants in the AAC block industry.

Financial Fortitude

In the second quarter of the fiscal year 2024, Bigbloc Ltd posted a revenue of Rs 58.9 crore, exhibiting a growth of 21% compared to Rs 48.5 crore in the same period of the fiscal year 2023. The EBITDA amounted to Rs 14.9 crore, indicating a 7% rise from the previous year’s Rs 13.9 crore. However, the Profit After Tax (PAT) for Q2FY2024 stood at Rs 7.5 crore, signalling a decrease of 11.8% from the Rs 8.5 crore in the corresponding period last year.

The company’s focus is primarily on enhancing EBITDA margins rather than net profit margins, considering factors such as CAPEX, where control is limited. The net debt to equity ratio is now at 1.2x, slightly higher than FY23’s 1.1x, denoting a modest increase attributed to internal accruals for capital expenditures.

Product Future and Market Dynamics

BigBloc’s core product, AAC, is a steam-cured mix known for its unique properties. Offering benefits such as being lightweight, energy-efficient, and earthquake-resistant, NXTBLOC AAC blocks are emerging as a superior building material. India’s burgeoning construction industry, with a projected market value of Rs 11,095 Crore by 2027, aligns perfectly with BigBloc’s growth strategy. Government initiatives, reduced GST rates, and a shift towards sustainable alternatives create a favourable landscape for AAC market growth.

Global and National Landscape

On a global scale, the AAC market, valued at USD 19.5 billion in 2021, is expected to witness a CAGR of 6.20%, reaching almost USD 34.3 billion by 2031. BigBloc’s collaboration with Siam Cement Group (SCG) positions the company with enhanced technological expertise and global reach. Despite India being the world’s second-largest block manufacturer, the AAC industry remains largely unorganized. This presents a unique opportunity for companies like BigBloc, with its strategic positioning and commitment to sustainability.

Valuation and Growth Prospects

BigBloc’s growth prospects receive substantial buoyancy from India’s booming construction industry and governmental initiatives. The collaboration with SCG further strengthens technological expertise. With the upcoming commissioning of the SIAM plant and Wada plant phase 2 by the end of FY25, BigBloc is poised to be the largest AAC block manufacturer in India. The current order book of Rs 8 to 10 crore and increased margins contribute to the company’s strong financial position.

Operational Efficiency and Sustainability

Operating with lower raw material costs, BigBloc’s usage of fly ash from thermal power plants, obtained for free, adds to the company’s sustainability credentials. The ongoing expansion plans, including doubling the capacity of the Wada plant, reinforce the commitment to meeting growing demand. Economies of scale will be a key driver post-expansion, cementing BigBloc’s leadership in the market.

Future Outlook

Management targets revenues of Rs 500-600 crore in the next five years, with demand outpacing capacity growth. BigBloc’s commitment to quality, sustainability, and innovation is evident in its impressive 3-year revenue CAGR of 19%, 3-year EBITDA CAGR of 69%, and an enviable return on equity of 39%. As the company navigates the dynamic construction and building materials sector, BigBloc’s growth trajectory positions it as a compelling choice for investors seeking a promising small-cap opportunity.

Conclusion

BigBloc Ltd’s financial resilience, strategic positioning, and commitment to sustainable practices make it a small-cap company worth watching. As it continues to build its presence in the construction industry, BigBloc’s potential for industry leadership and growth makes it an attractive prospect for investors eyeing the small-cap segment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.