Multi Bagger: C&C Constructions Ltd

C&C Constructions is an Infrastructure project development company that provides EPC services for Infrastructure projects. The company’s expertise lies in transportation engineering projects including Roads and Bridges. Besides, the company has diversified into other segments including Water, Sanitation, Airport projects, Telecom Infrastructure and Transmission Towers. The company has maintained a strategy of executing projects in geographies where operating conditions are challenging either politically or logistically, in order to be able to capture higher margins. The company has executed projects in Afghanistan and Bihar. The company’s major clients include NHAI, AAI, Infrastructure Boards, Public Welfare departments of various state governments, the Government of Afghanistan, The Louis Berger Group and RITES Ltd.

Projects:

Some of the recent projects bagged/ projects under execution by the company include:-

  • BOT Project in Joint Venture with BSCPL for 44 Km Toll Road on Kurali-Kiratpur section of NH-21.
  • Development of a Four Lane Road from Zirakpur to Parwanoo from Jaypee Associates amounting to Rs 574 crores.
  • Mohali Bus Terminus Project (BOT Project) amounting to Rs.300 crores for development of a Bus Terminal at Mohali and additionally allows the company to develop and sell Commercial space, Hotel, Entertainment etc.
  • Urban Transport Project to construct a road of 15km for plying High Capacity buses in Delhi.
  • The company has entered Bihar in a big way and is executing Road projects and dedicated freight corridor projects of over Rs 1200 crores – Bihar may be a big potential market for the company.
  • Construction of Underground Parking lots at Hauz Khas, Munirka, Model Town and Gandhi Nagar – Rs 120 crores.
  • Construction of Afghan Parliament Building and Chancery Building in Kabul –Rs 635 crores.
Particulars Qtr ended Qtr ended Qtr ended YTD / Latest Half YTD / Latest Half YTD / Latest Half Yr ended Yr ended Yr ended

(Mar 09)

(Mar 08)

(% Var)

(Mar 09)

(Mar 08)

(% Var)

(Jun 08)(12)

(Jun 07)(12)

(%Var)

 

Sales

282.94

165.98

70.5

575.92

301.39

91.1

533.26

330.422

61.4

Other Income

0.15

0.45

-66.7

3.56

4.14

-14

7.94

5.8

36.9

PBDT

49.14

39.99

22.9

109.3

71.75

52.3

100.84

77.43

30.2

Interest

31.24

13.4

133.1

62.62

20.22

209.7

32.86

19.65

67.2

PBDT

17.9

26.59

-32.7

46.68

51.53

-9.4

67.98

57.78

17.7

Depreciation

7.51

7.14

5.2

18.45

16.14

14.3

15.47

16.02

-3.4

PBT

10.39

19.45

-46.6

28.23

35.39

-20.2

52.51

41.76

25.7

Tax

1.97

7.49

-73.7

6

12.13

-50.5

7.68

11.28

-31.9

Deferred Tax

0.33

-0.51

LP

0.74

-1.5

0

3.92

-2.69

LP

PAT

8.09

12.47

-35.1

21.49

24.76

-13.2

40.91

33.17

23.3

Quaterly Latest Results – C & C Constructions Ltd (Curr: Rs in Cr.)

 

Investment Rationale:

The pace of growth especially in the Road construction sector has been slow in the last few years – the progress of NHAI projects particularly has been dismal. We believe in future we may see heightened activity in the Infrastructure sector for no government can afford to ignore the sector for long and the sector may witness may see sweeping policy changes in terms of :- a) Having a dedicated ministry for the Infrastructure sector; b) Accountability of authorities as regard timely implementation of projects and; c) Creating a pool of Go-Getting officers (likes of Dr. E.Sreedharan of Delhi Metro). All these changes are likely to be good for the Indian Infrastructure.

The order flow which has dampened in the last few months on account of the focus of the government shifting towards elections, is likely to pick up after a new government is formed at the centre. C&C Construction has an unexecuted Order Book of Rs 3057 crores as on 31st March 2009 – out of this its standalone order book is Rs 1669 crores and the company’s share in the Joint Ventures is Rs 1388 crores. Domestic orders constitute 86% of the total order book, while the balance 14% are in Afghanistan. Bihar, Haryana, Delhi, Punjab and Afghanistan are the major Geographical locations where the company is executing current projects. As against an unexecuted order book of Rs 3057 crores, the company’s market cap is just Rs 192 crores. The company has got a few BOT projects for execution – Development of Bus Terminal at Mohali with rights to develop Commercial, Hotel and Entertainment space and the 44 Km Kurali-Kiratpur Toll Road project, both these projects carry good profit potential. Besides, the company enjoys operating margins of around 18-20%, which is higher than the peer group.

The robust Order book scheduled for implementation over the next 2-3 years provides strong earnings visibility for the next few years. High Raw material cost and High Interest cost were key reasons for muted performance of the company in last few quarters. With declines witnessed in both, the company’s performance may improve from FY10. High Promoters holding of 70% of the company’s Equity Capital provides added confidence.

The markets behave as a herd and everyone wants to take a pie of a sector which becomes HOT – not many would want to touch a stock or sector when there are concerns, however stock prices generally see a sharp run up before the sector or the stock catches market fancy and the ones who make money are the early entrants who buy stocks when they appear risky, and when there are concerns & uncertainties surrounding a particular stock or sector. Infrastructure is a sector which has over the past 1-1/2 years witnessed excessive euphoria to extreme pessimism. With expectation of improved order flow and availability of credit, we believe the sector has the potential to be back in favour.

We believe C&C is one such stocks where the markets has concerns regarding the sector and also concerns regarding High Interest cost in the company –however these concerns look largely discounted in its stock price. We believe C&C Construction is a good candidate to accumulate. Given the volatility witnessed in the market, investors can consider buying the stock at the current levels and on declines.

, , , , , ,