10 Ocober 2008

PINC Research has given a buy rating for C & C Construction in its 8 October 2008 research report

Company description

Incorporated in Jul'96, Gurgaon-based C&C Constructions Ltd. (C&C) is an infrastructure development company providing EPC services in India & Afghanistan. Its expertise primarily lies in executing transportation engineering projects including roads, bridges, flyovers & airport runways. Since inception, C&C has successfully completed 29 projects aggregating over Rs12bn. In FY07, it diversified operations across 3 new business verticals namely urban infrastructure, power transmission and water sanitation & sewerage.

Performance

C&C Constructions Ltd. (C&C) posted Q4FY08 results in line with our expectations. Net sales for the quarter stood at Rs2.3bn (up 78.3% YoY) fuelled by contract revenues from Indian operations. While OPM dipped to 12.5% (down 1,258bps YoY), other income of Rs37mn propelled net profits to Rs161mn.

Order book remains robust

C&C currently possesses a healthy order book position of Rs16.1bn spread across 18  Projects. Additionally, it stands L1 for projects worth Rs12bn clarity on which, should emerge by end-Q2FY09. In FY08, the company bagged fresh orders worth Rs11.8bn (Vs Rs6bn in FY07).
~81% of these orders were bagged independently, signifying a much lesser dependence on JVs for bidding. The average execution period of the backlog stands at 30 months.

 Maintains geographical work preference

Geographically, C&C continues to maintain its work focus across difficult operating terrains & in adverse weather conditions. Out of the Rs11.8bn of fresh orders bagged during FY08, ~81% accrue from Punjab, Haryana & Himachal Pradesh. Orders from Afghanistan (~15%) & Madhya
Pradesh (3.5%) filled the remaining chunk.

VALUATIONS AND RECOMMENDATION

C&C has depicted a continuous growth in its business volumes over the years. Its contract revenues have grown at a CAGR of ~34% from FY04-08. Having successfully demonstrated its execution skills & resource mobilizing abilities, we strongly believe that C&C should command a P/E of 3.3x (~35% discount to its peer group) its FY10E earnings.

At the CMP of Rs120, C&C trades at a P/E of 3.1x & EV/EBIDT of 3.2x its FY10 earnings
estimates. We value C&C’s core business operations at Rs130 (3.3x FY10E EPS of Rs38.6)
and its 49% stake in Kurali Kiratpur BOT at Rs40/share. Thus, on a SOTP basis we arrive
at Rs170/share as the fair value of the stock. Hence, we maintain our ‘BUY’ recommendation
on the stock with a revised 12-month price target of Rs170.