IPO Note: CCCL: constructing India

Consolidated Construction Consortium Ltd (CCCL) is a Chennai based company, incorporated in 1997 which provides integrated turnkey construction services in the industrial, commercial, infrastructure and residential sectors of the construction industry. CCCL was founded by 4 Promoters, who are qualified professionals in the area of civil engineering and construction. The promoters were ex L&T employees having more than 20 years of experience construction industry.

CCCL activity includes
(i) construction services such as construction design, engineering, procurement, construction and project management.
(ii) construction allied services such as mechanical and electrical, plumbing, fire fighting, heating, ventilation and air conditioning, interior fit out services and glazing solutions.
CCCL has two subsidiaries, Consolidated Interiors Limited and Noble Consolidated Glazings Limited. The company provides services directly through subsidiaries or out sourced to third parties.

As of now CCCL has executed 334 projects. Out of which 172 commercial projects, 104 industrial, 14 infrastructure projects and 44 residential projects across 14 states and union territories in India. The total built up area of the constructed projects is about 19 mn sq ft, comprising of 12.68 mn sq ft in commercial sector, 3.84 mn sq ft in industrial sector and 2.48 mn sq ft in residential sector.

CCCL revenues can be broadly classified in to Commercial, Industrial, Residential, Building products and Infrastructure. For FY07 the Commercial division contributed 59% of revenues, Industrial division contributed 34% of revenues, Residential 3%, Building products 3% and rest from infrastructure. CCCL has good presence in South India. It drives 92% from southern region, 5% from northern region, 2% from western region and the rest 1% from eastern region. CCCL has recently entered in western and eastern region and aims to extend its operation through out India. The company also plans to explore new overseas opportunities in Middle East and has recently entered into an agreement for a JV with Trade line LLC, Dubai to capitalize the increasing construction activities in Middle East.

CCCL projects in commercial sector includes construction of IT/ITES Parks, Hospital, Hotels, Hostels, Resorts, Malls, Multiplexes, Auditorium, Educational buildings etc. Its industrial sector includes construction of factory Building, Bio-parks, Bottling plants etc. On the other hand Residential division includes Housing projects, multi-storey residential complexes etc. Infrastructure includes construction of Airport terminal buildings, water supply scheme, power stations, bridges etc. CCCL clients include both private and public sector companies such as Infosys Technologies, Ascendas IT Park (Chennai), Khivraj Technology Park Private Ltd, Manipal University, Airport Authority of India Limited, Hi-Tech Carbon (a unit of Aditya Birla Nuvo ) and the Infosys Foundation. Its public sector clients include the AAI and public utility works like power distribution entities and water supply boards.

As on 31st July 2007, the total value of order book is Rs 2050 cr which has to be completed in 12-15 months. The company will be executing 146 projects across various states in India. Out of the total order book 72% is of commercial, 15% industrial, 12% infrastructure and balance 1% in residential. The company is growing aggressively in commercial and industrial sectors as it feels these are main growth drivers.

CCCL owns 17.43 acres of land on the outskirts of Chennai and 3.26 acres of land in Bangalore. The company and its subsidiaries have acquired approximately 127 acres of land in Tuticorin District, Tamil Nadu. It proposes to transfer all of the aforesaid land to subsidiary, CCCL Infrastructure Limited. CCCL is in the process of acquiring approximately 9,467 sq ft of space in New Delhi which intends to use for its operations and has already made an advance payment of Rs 4.23 cr.

CCCL has recently proposed the development of food processing SEZ and has received a formal approval from the Govt for setting it up. It has also earmarked approximately 300 acres of land in Tuticorin District for this. CCCL intends to develop the above SEZ through a joint venture which may involve equity participation by third parties. The funding for this would be met through proceeds of IPO issue.

The company's attempt at is the opportunity of SEZ business and the Govt is still approving many of them. The growth potential is good and there are only few players in this segment. CCCL is attempting to capitalise the huge opportunities in SEZ play and this could be the major driver for the company's revenues in future.

CCL Initial Public Offer of Rs 170-189 cr has been fixed with a price band of Rs 460- 510 per share. The current paid up capital is 33.25 mn shares and the company will increase it by 3.7 mn shares. The total IPO proceeds Rs 189 cr would be utilized to finance the acquisition of construction infrastructure, investment for subsidiaries (to acquire land for SEZ), to meet the expenditures towards skill and management development centre and for repayment of loans.

For the FY07 the revenues grew by 100% to Rs 850 cr from Rs 425 cr. The bottom line also grew by 144% to Rs 46 cr from Rs 20 cr. The Ebidta margins stood at 8%, where the Ebidta profits grew by 99% to Rs 67 cr on yoy basis. The growth was largely from commercial and industrial sectors.

Valuation are expensive and not compelling at all. At the higher price band of Rs 510 as the stock trades at 41 times of FY07 earnings. The business environment is good, with a strong order book. We believe macro scenario is good and one can invest for listing gains at cut off .

The risk to the business is from its unrelated activity. CCCL intends to develop a Food Processing SEZ. It lacks the experience of the same. We believe markets tend to discount too much of the positives. Another risk is from higher raw material prices for their fixed priced contracts. In FY07 company?s revenue from fixed price contract was 28%.

In India real estate investment is expected to double as much as made in the previous 5 years. Investments in real estate will be driven primarily by housing, which is expected to account for nearly 90% of the total real estate sector as defined by CRISIL Research. Investments in commercial construction are expected to grow faster than investments in housing, mainly due to a spurt in office space construction, driven by information technology/IT enabled services (IT/ITES). Over the next 5 years (2006-07 to 2010-11), real estate investments are expected to grow to Rs 18,339 billion from Rs 10,885 billion invested over the last 5 years (2001-02 to 2005-06).