CCCL

CCCL

C&C Constructions

Investors can take advantage of recent price declines to buy the stock of infrastructure player C&C Constructions. At Rs 161, the stock is available at a bargain valuation of just 5.3 times trailing the 12-month earnings, a discount to peers such as Valecha Engineering and Ahluwalia Contracts. Those already invested may use the price decline to average costs. C&C's strengths include successful projects in tough terrain and diversification into urban infrastructure projects. Healthy operating margins and a sizeable order-book add to the attraction.

CCCL

CCCL

CCCL, Diamond Power Infrastructure, GSPL, ILFS, JB Pharma, Kaveri Seed, Kajaria Ceramics

CCCL, Diamond Power Infrastructure, GSPL, ILFS, JB Pharma, Kaveri Seed, Kajaria Ceramics

Asian Paints, CCCL

Asian Paints, CCCL

C&C Constructions

Investors with a medium-term horizon may buy the stock of construction contractor C&C Constructions, on the merit of its low valuations, operating efficiencies, comfortable order book position with shorter execution periods and wide geographical presence.

At Rs 229, the stock trades at a modest PE of 7.5 times trailing four-quarter earnings, lower than peers such as Valecha Engineering. Investors may accumulate the stock on declines linked to broad markets.

Roads and highways have long been the mainstay of the company, and this segment forms 52 per cent of the Rs 2,738-crore order book (as of March 2010). C&C has carved a reputation for timely execution in difficult terrains such as Bihar and Afghanistan.

In recent times, it has also moved to mitigate risks of sector concentration by increasing presence in higher margin railways (14 per cent of order book), commercial and industrial buildings (29 per cent of order book). It has begun to execute contracts in the water and sanitation segment and power transmission lines too.

The company is thus poised to increase order intake as spending on infrastructure and urban development grows. The order book stands at 3.7 times the sales of FY09 (July 2008 to June 2009) with an average execution period of 24 months, providing near-term earnings visibility.

C&C also undertakes contracts through joint ventures, allowing access to bigger projects and boosting own expertise. It has recently partnered Spain-based Isolux Corsan through which it will be able to execute projects in Asia and much of the Soviet bloc in segments such as oil & gas, power transmission, railways and roadways and bridges. C&C has a strategy of owning high-end equipment, with investment increasing over 60 per cent in FY09. Such investment ensures timely availability of critical equipment, besides operational efficiency. Operating margins are a healthy 24 per cent for the nine months ended March 2010, up from the 19 per cent in the same period the previous year, far superior to its peers. Net profit margins for the same period were at 4.7 per cent against 3.7 per cent last year on account of high depreciation warranted by machinery investment and interest costs on borrowing to fund projects and equipment. Such margin suppression may not persist in the long term as the company completes sourcing key equipment. Sales increased 33 per cent for the nine-month period ending March 2010, while net profits grew 67 per cent.

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HDFC, Canara Bank, MTNL. Puravankara Project, Consolidated Construction Consortium, ABB, Siemens

Consolidated Construction Consortium

We recommend a buy on Consolidated Construction Consortium (CCCL) stock from a short term trading perspective. It is clearly apparent from the charts of CCCL that it was on an intermediate-term downtrend from August 2008 high of Rs 634 to an all-time low of Rs 105 recorded on April 9. However, the stock recently found support in the range of Rs 105-110 and bounced off changing its direction.

A prolonged positive divergence in the daily moving average convergence and divergence indicator supports this trend reversal. The stock jumped up 18 per cent, penetrating the intermediate-term down trendline as well as 21-day moving average on April 13. Moreover, the stock has closed above its 50-day moving average.

We notice that there is an increase in volume over the past three trading sessions. The daily relative strength index (RSI) is on the brink of entering in to the bullish zone and the weekly RSI is recovering from the oversold territory. Our short-term forecast on the stock is bullish. We anticipate it to move up until it hits our price target of Rs 140.

Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 121.

CCCL: Buy

South-based Consolidated Construction Consortium Ltd (CCCL) is a pure play construction contractor. The company is well-placed to capture opportunities in both sectors that it operates in — realty and infrastructure — and retains the flexibility to shift between them based on sector prospects. It has a sizeable short-term order backlog more than half of which comes from existing customers, suggesting execution skills that are not easily replicated by other players.

At Rs 126, the stock trades at five times its trailing 12 month earnings, at a premium to some peers. Enterprise value stands at 0.32 times its trailing 12 months sales and 0.26 times its projected FY10 revenues. Buying this stock will pay in the long term, given the company’s wide-ranging expertise, focus on construction contracting alone and reputation for delivering quality which will help it tide over a slowdown in the coming few quarters.
Healthy Order Book

The current value of outstanding orders stands at Rs 3,650 crore, up almost Rs 1,000 crore from the order book at the beginning of this financial year. Order backlog is 2.5 times the 2007-08 revenues. CCCL’s projects span a short duration averaging 12 to 18 months, thus ensuring quick transition of orders into revenue and medium-term earnings visibility. One longer term project is the Chennai airport project commanding a 30 month timeline.

Centred on pure construction contracts, CCCL does not have any projects on long-term Build-Operate-Transfer models. Price escalation clauses are built into over 80 per cent of contracts. In a bid to tide over the slowing pace of order inflow, CCCL has relaxed its benchmark for order value, and sought to broaden expertise in various sectors which would serve it in bidding for a greater diversity of projects.
Order book composition

The order book is dominated by commercial construction projects with 45 per cent of the orders stemming from this segment. Industrial contracts are about Rs 600 crore (16 per cent). Share of infrastructure contracts has been slowly increasing, currently at about Rs 1,440 crore or 38 per cent of the order backlog. Having been contracted for airport projects, bridges, it hopes to solidify presence in the infrastructure space by booking orders in water treatment plants, metro rail construction, power and similar projects. Residential construction forms a minimal portion of the order book, and will remain so for the coming quarters. Outstanding contracts are worth about Rs 30 crore, less than 1 per cent of the backlog. This may shield it considerably from the marked slowdown and liquidity problems that are currently holding up realty projects. A conscious effort is being made to include a greater proportion of public sector projects to reduce its dependence on the private sector on which front the company is facing payment delays.
Financials

Sales and profits grew at a CAGR of 85 and 114 per cent, respectively, over the past three years. Return on capital employed improved on a year-on-year basis, from 31 to 33 per cent in the space of three years. Return on investment moved up as well, from 23 to 27 per cent. Turnover of working capital into sales picked up from 2.6 times in FY06 to 3.7 times in FY 08. On the funding side, CCCL still retains a part (Rs 51 crore) of its IPO proceeds and it operates at a low leverage of 0.4 times, ranking lower than most peers. Interest cover is fairly strong at about 11 times, leaving the company reasonably comfortable to meet fund requirements.
Concerns

The past two quarters have seen CCCL’s revenues continue to expand at a fast clip, even as margins fell. The September quarter saw a 22 per cent increase in sales compared to the same quarter in 2007, but operating and net profits dipped 5 and 37 per cent, respectively. The December quarter fared slightly better with sales up by 30 per cent over the same period in 2007, as operating and net profits declined by 6 and 32 per cent. Margins suffered with a 144 basis points cut in operating margins in the December quarter over the preceding quarter.

Five order cancellations worth Rs 395 crore and a slowdown in execution of select projects due to clients’ funding constraints meant that successive quarters saw sales sliding. Though manpower costs have increased on a quarterly basis, the company has held back hikes in salaries though it is not resorting to workforce cuts. The average period for debt collection too has increased from 51 days at the start of this financial year to the current 60 days. The next few quarters may see sluggish order inflows, slower execution of projects or maybe further cancellations, but the company remains one of the preffered exposures in the construction space.

C&C Constructions

We recommend a buy in C & C Constructions from a short-term trading perspective. It is evident from the charts of C & C Constructions that it had been on a medium-term downtrend from its September high of Rs 184 to October low of Rs 71 (52-week low). The stock almost tumbled 60 per cent from this peak to 52-week low. However, the stock reversed direction from its 52 week low, triggered by the positive divergence in the daily relative strength index (RSI). The stock has been on a medium-term uptrend since October low.

During early November, the stock conclusively penetrated the medium-term down trendline and breached the 21-day moving average. The daily RSI is rising in the neutral region towards the bullish zone. The stock is currently hovering around the support level at Rs 100. We are bullish on the stock from a short-term perspective.

We anticipate the stock to move upward until it hits our price target of Rs 116 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 98.

C&C Constructions

C&C Constructions

Punj LLoyd, NTPC, Cairn India, Ranbaxy, Glenmark, Sun Pharma, Bharat Electronics, India infoline, CCCL, Jet Airways, Jagran Prakashan, Sadbhav Enginee

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