Initiating Coverage - Business...

Init

iati

ng C

over

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STOCK DATA

RELATIVE PERFORMANCE

Ahluwalia CCCLMarket Cap Rs13.3bn Rs15.3bnBook Value per share Rs77 Rs44Eq Shares O/S 62.8mn* 184.8mn*Free Float 26.8% 49.4%Avg Traded Val. (6 mths) Rs38.4mn Rs14.6mn52 week High/Low Rs246/152 Rs98/59Bloomberg Code AHLU IN CCCL INReuters Code AHLU.BO CCON.BO*FV of Rs 2

PERFORMANCE (%)

1M 3M 9MAbsolute Ahlu (0.6) (1.9) 33.3Relative Ahlu (10.2) (15.9) 10.0Absolute CCCL 0.0 (8.0) 34.3Relative CCCL (9.7) (21.1) 10.9

07 October 2010

Vinod Nair +91-22-6618 6379

[email protected]

Subramaniam Yadav +91-22-6618 6371

[email protected]

Ahluwalia Contracts (India) Ltd.

Initiating CoverageSector: ConstructionBSE Sensex: 20,543 RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

BUYCMP Rs83TP Rs107

1

ACIL (Rs mn) FY09 FY10 FY11E FY12E

KEY RATIOS

Net Sales 11,641 15,677 18,737 22,808YoY Gr. (%) 32.3 34.7 19.5 21.7Operating Profit 1,446 1,736 2,155 2,669OPM (%) 12.4 11.1 11.5 11.7Adj. Net Profit 577 818 1,025 1,284YoY Gr. (%) 11.8 41.8 25.3 25.3

Dil. EPS (Rs) 9.2 13.0 16.3 20.5ROACE (%) 48.7 46.4 41.5 39.2ROANW (%) 38.2 38.0 34.0 31.2PER (x) 23.1 16.3 13.0 10.4EV/EBIDTA (x) 8.9 7.4 6.0 4.8

We initiate coverage on Ahluwalia Contracts (ACIL) andConsolidated Construction Company (CCCL) with a 'BUY' ratingand TP of Rs266 and Rs107 respectively. Both the companiesoperate in similar lines of business comprising civil constructionactivity. They generate excellent return ratios and are capturingsizeable orders in infrastructure.Ahluwalia Contracts

A consistent performer with best-in-class return parameterssuch as RoE of 38%, RoCE of 46%, a light balance sheet with WCto sales at 4.2%, low leverage at 0.5x, and well capitalised grossblock at Rs2.3bn in FY10.EBIDTA margins robust at 11.5% in FY11E and 11.7% in FY12EExpected to generate FCF of Rs804mn in FY11 and Rs584mn inFY12.Management is keen to grow in the infrastructure space,especially in urban infra and BoP, which already constitute 19%of order book from 7% in FY08.

VALUATIONS & RECOMMENDATIONWe initiate coverage on ACIL with a 'BUY' rating and value the companybased on PE methodology. Considering its quality of returns, healthybalance sheet and strong working capital management, we assign aP/E of 13x, in line with its average valuation since listing. This is becausewe believe that ACIL has the requisite abilities to scale up and attain asubstantial portion of the premium valuation it commanded duringFY07-09, thus arriving at a target price of Rs266.CCCL

After establishing its brand in civil construction, CCCL is on thepath to emerge as an integrated infrastructure player.Key emphasis is on infrastructure orders with segments suchas Power and Airport playing a crucial role (2.3x Sales/OB FY10).Increased traction is seen from Power project orders &indigenously bidding for BoP projects.CCCL aspires to become a developer with SEZ and BOT projects(multi-level car parking) on the anvil.

VALUATIONS & RECOMMENDATIONWe initiate coverage on CCCL with a 'BUY' rating and value thecompany based on PE methodology, given its superior return ratios,strong order book position and earning growth expectation of 15.5%and 33.4% in FY11 and FY12. We assign a PE of 14x (average last oneyear) to FY12E earnings of Rs7.6, which yields a target price of Rs107;an upside of ~33% from the current level. We do factor in the SEZproject (at a nascent stage of development) or real estate projects,which would provide further upside to the stock.

SHARE HOLDING PATTERN (%)

Ahluwalia CCCL Promoters 73.2 50.6 FII 2.6 7.4 DII 8.9 5.0 Public & Others 15.3 37.0 Total 100 100

PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>

CCCL (Rs mn) FY09 FY10 FY11E FY12E

KEY RATIOS

Net Sales 18,413 19,759 24,412 31,173YoY Gr. (%) 24.8 7.3 23.5 27.7Operating Profit 1,223 1,847 2,246 2,868OPM (%) 6.6 9.3 9.2 9.2Adj. Net Profit 728 916 1,058 1,411YoY Gr. (%) (18.1) 25.8 15.5 33.4

Dil. EPS (Rs) 3.9 5.0 5.7 7.6ROACE (%) 18.1 20.9 20.5 21.9ROANW (%) 15.0 16.6 16.6 18.8PER (x) 21.1 16.7 14.5 10.9EV/EBIDTA (x) 13.1 9.2 7.5 6.1

CCCLBUYCMP Rs212TP Rs266

30

50

70

90

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

CCCL BSE (rebased) Ahlu (rebased)

Contents


The Business ....................................................................................................................... 3

Investment argument

A consistent performer with efficient return ratios ....................................................... 4

Light balance sheet - Efficient working capital management .................................... 7

Positive cash generation ................................................................................................... 8

Strong return ratios ............................................................................................................ 9

DuPont analysis .................................................................................................................. 9

Order book...post CWG (38% CAGR in order inflow FY10-12E) .................................... 10

Valuations and Recommendation ................................................................................... 12

Peer valuation..................................................................................................................... 13

Risks ................................................................................................................................... 13

Financial Statement ........................................................................................................... 14

CONSOLIDATED CONSTRUCTION CONSORTIUM LTD.

The Business ....................................................................................................................... 16

Investment argument

Diversified order book provides growth impetus .......................................................... 17

Robust order inflow expected at 50% CAGR over FY10-12 ..................................... 17

Changing mix toward infra orders ............................................................................ 18

Infrastructure to spearhead growth ................................................................................. 19

Commercial segment – reducing mix in OB ................................................................. 20

Industrial segment is capex-driven ................................................................................. 21

Better working capital management and risk mitigation are in place ...................... 22

Better asset turnover engenders strong return ratios ................................................... 23

Asset ownership business - future growth drivers ........................................................ 24

Subsidiaries ........................................................................................................................ 25

Valuations and Recommendation ................................................................................... 27

Background ........................................................................................................................ 28

Financial Statement ........................................................................................................... 29

Concerns… ......................................................................................................................... 30

Annexure ............................................................................................................................ 31

2

[email protected] [email protected]

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCHAhluwalia Contracts (India) Ltd.

The Business

Ahluwalia Contracts (India) Ltd (ACIL) is primarily involved in civil construction andmakes building structures in commercial and residential units such as malls, hospitals, educational institutes, super luxury hotels, and commercial, corporate office andmultistoried residential complexes. The company has a long history of more than fourdecades in civil construction and undertakes government and private contracts; it ismore oriented toward the latter with 70% share. ACIL has presence across the country,especially in North India and particularly in the Delhi and NCR region, which accountsfor more than 45% of its order book; the eastern region is the second highest with 21%share.

Over the years, ACIL has maintained a steady business model, which is largely focusedon buildings structures in the residential, industrial and commercial segments. Thecompany has been able to create a strong brand image and secure repeat orders fromclients such as ITC, DLF, and India Bulls.

ACIL has also enhanced its capabilities and emerged as an integrated solutions providerin the civil contraction space. At present, the company provides consolidated servicessuch as design, civil, aluminium works, plumbing and RMC, which has enabled it toimprove financial performance over the past five years (discussed in the financialssection).

Having established itself as a civil contractor with strong credentials, ACIL is keen onventuring into the infrastructure segment; it is looking at civil construction opportunitiesin BOT (multi-level car parking and terminal projects), power, airports, SEZs, andrefineries.

AHLUWALIA CONTRACTS (INDIA) LTD.

Business segments

ACIL

Civil

Source: Company, PINC Research

Infrastructure

Commercial Residential

Hospital

Hotel

Institutional

Retail

Power

BOT



Investment Argument

A consistent performer with efficient return ratios

ACIL has a strong history of consistent performance, which is led by continuousimprovement in execution capabilities; thus improving EBITDA margins, also a lightworking capital, which in turn have resulted in strong RoE and RoCE.

Have developed strong execution capability

Compared to peers ACIL’s lower growth in net order backlog is due to improvement inexecution capabilities. We understand that the execution ratio improved to 41% in FY10from 18% in FY07. This, we believe, will increase to 45-47% as the current order book hasaverage execution of 24 months and average inflow of Rs25.7bn is expected overFY11-FY12. Excluding the exponential growth periods of FY08, ACIL’s gross order bookgrew at 30% over FY09-FY10. It has a sound track record of execution, which has grownconsistently at 33% over the past three years. Consequently, we are confident aboutACIL’s ability to garner orders and execute them in a timely manner. We expect net orderbacklog to grow at 10% in FY11 and 22% in FY12 to Rs40bn.

Net order book to improve going ahead


Expect stable PAT growth


24%

12% 22%20%

35%32%31%

61%

24%20%

36%53%

78%

25%25%

42%

66%61%

0%

20%

40%

60%

80%

100%

FY07 FY08 FY09 FY10 FY11E FY12E

Sales Ebidta PAT

Continous improvement inexecution ratio

PAT growth in FY09 down dueto heavy depreciation

38%28%

28%31%

94%

22%10%

0%2%

33%47%46%41%

32%

27%

0%

30%

60%

90%

120%

FY08 FY09 FY10 FY11E FY12E

Gross order gr. Net order gr. Ex ecution ratio



ACIL

Margins healthy ... one time in FY10

ACIL’s EBITDA margin improved remarkably during FY08 and FY09 at 12.1% and 12.4%respectively, from average 9-10% in prior years aided by CWG opportunity. However,margin took a hit of 135bps in FY10 to 11.1%, which we belive is still healthy. The impactwas due to one-time adjustment toward gratuity, bonus, subcontracting, and bad debtprovision; adjusting for these, margin stands at 10.5% for Q4FY10 and 11.9% for FY10.

ACIL’s margins are healthy owing to ACIL’s four decades of experience and as it hasmanaged to build capabilities & brand to provide fully integrated construction andengineering solutions.

Healthy and consistent performance


20.3%18.8%

17.3%15.8%16.8%15.6%

13.4%

17.7%

17.5%

17.2%19.1%18.2%

16.1%14.5%

11.7%11.5%11.1%12.4%12.1%10.4%9.4%

4.7% 4.7%5.9%

5.0% 5.2% 5.5% 5.6%

0.0%

6.0%

12.0%

18.0%

24.0%

FY06 FY07 FY08 FY09 FY10 FY11E FY12E

Subcontract Gross profit EBITDA Adjusted PAT

Turnkey solution provider


Low sub contracting

Design

Exemplary In-house

Design Cell

comprising of

Design Experts

from architectural

discipline

Civil

Undertake all kinds

of construction work

from piling to pre-

cast-prestressing

work

RMC

Produce over1800

cubic meters of

concrete a day with

self ownedtransit

mixers, stationery

and boom pumps

Electro Mechanical

Provide supply,

installation, testing

& commissioning

services for

electrical works

Plumbing & Fire

fighting

Provide

procurement,

execution, testing

& commissioning

services for Water

Supply, Sanitary &

Fire Fighting Works

Aluminium facades

& Bldg. glasses

Undertake design,

supply and

installation of

aluminum doors,

windows, structural

gazing, glass

façade& aluminum

cladding



South City,Kolkata

Excellent Clientele

ACIL has a strong client list and has been able to secure repeat orders consistently; it hasbeen winning big-ticket orders limiting OH cost. At present, ACIL is working on 100 plusnumber of projects. ACIL also has well-capitalized fixed assets, which currently stand atRs2.3bn; the company believes in acquiring equipment and limiting sub-contracting.Its equipment include 75+ tower cranes, 35+ batching plants, 45+ transit mixers, and alarge RMC division of six plants. Its workforce stands at 4000.

Clientele

Source: Company

Completed projects

Residential Commercial Hotel Retail

ITC Corporateoffice, Gurgaon

Four SeasonsMumbai

InorbitMall,Mumbai

Gurgaon One,Gurgaon

Technopolis,Kolkata

Rennaisance,Mumbai

India ExpositionMart, G. Noida

DLF RichmondPark , Gurgaon

SEBI OfficeBuilding, Mumbai

Shangri-La ,N. Delhi, Mumbai

Brigade Orion Mall,Bangalore

Brigade Metropo-lis, Bangalore

Maruti CorporateOffice, New Delhi

ITC Grand Central,Mumbai

MBD Mall,Ludhiana

La Citadel,Oshivara, Mumbai

Apollo Tyres Corp.Office, Gurgaon

Hotel GardeniaBangalore

Destination Point,G. Noida




Excellent working capital management


Cash credit days to remain around 2 months

Source: Company, PINC Research All ratios are averages

0.9 0.9 0.9 0.9

1.11.1

1.2

3.7%

(1.8%)(1.2%)

(6.0%)

4.2%2.6%

4.5%

0.0

0.3

0.6

0.9

1.2

1.5

FY06 FY07 FY08 FY09 FY10 FY11E FY12E(7.0%)

(4.0%)

(1.0%)

2.0%

5.0%Quick ratio Working capital/Sales

-47

-16-16-14-37-30

-18

123124130

162

112

65

153

69707584

7456

33

-65

-25

15

55

95

135

175


Cash credit cy cle Creditor day s Debtor day s

Light balance sheet - Efficient working capital management

ACIL’s working capital management is extremely robust with net requirement at a mere4.2% of sales as of FY10; historically, the company has been able to maintain a lightbalance sheet. Capital employed in the business was Rs3.8bn in FY10 for turnover ofRs15.7bn, which is 4.2x.



Moreover, ACIL’s leverage is very low at 0.5x and hence it has comfortable interestcoverage for any aggressive growth plans.

Positive cash generation

ACIL is among the few companies in the construction sector that have been consistentlygenerating substantial positive cash from operations. Cash on hand stands at Rs1.7bnand capex is estimated at Rs600mn p.a. over FY11-FY12.

Comfortable leverage ratio


0.7

0.40.4

0.50.40.5

0.8

6.76.36.7

5.4

7.17.5

7.2

0.2

0.4

0.6

0.8

1.0

FY06 FY07 FY08 FY09 FY10 FY11E FY12E2.0

4.0

6.0

8.0

10.0D/E Int cov erage ratio

Cash positive at operational level


235.1446.2

1196.5

97.5

958.4

1826.6

1511.7

6.9% 5.2%

8.2%

5.4%0.1%

13.2%

6.0%

0.0

500.0

1000.0

1500.0

2000.0

FY06 FY07 FY08 FY09 FY10 FY11E FY12E0.0%

6.0%

12.0%

18.0%

24.0%

Cash from operation Operating cashflow /Sales



Strong return ratios

ACIL’s has been able to record healthy returns over the past five years, led by steadymargins, efficient working capital management, and a lean balance sheet. In FY10, thecompany achieved RoE and RoCE of 38% and 46.4% respectively.

DuPont analysis

DuPont analysis reveals two important factors that have enabled ACIL to achieve efficientreturns: high asset turnover and low leverage. However, over the years, ACIL’s RoE settleddown from 50% in FY08 to 38% as of FY10, which is typical for a growing company asasset turnover stabilizes. Over the last few years, the company was able to maintain RoEat healthy levels due to improvement in margins. EBIDTA margins improved from 9.4%in FY06 to 11.1% in FY10 (12.4% in FY09). We expect RoE to stabilize at 31% and EBITDAmargins at 11.7% by FY12.

Return ratios - best among peers


Du Pont AnalysisParticulars FY06 FY07 FY08 FY09 FY10 FY11E FY12E

Tax burden (x) 0.66 0.64 0.66 0.66 0.65 0.66 0.66

Interest burden (x) 1.00 0.97 0.94 0.90 0.89 0.87 0.88

EBIT margin (x) 0.07 0.07 0.09 0.08 0.09 0.09 0.10

Asset Turnover (x) 3.74 2.29 1.87 1.80 1.99 1.92 1.87

Leverage (x) 4.27 4.44 4.60 4.28 3.66 3.23 2.96

Du Pont RoE (%) 74.2 47.3 50.4 38.2 37.9 33.9 31.2


39.2%

12.2%12.4%12.1%10.5%12.5%12.0%

19.7%

41.5%46.4%48.7%

57.9%

52.3%

81.5%

31.2%34.0%38.0%38.2%

53.0%

55.8%

91.9%

54.1%

83.6%

52.8%51.4%46.6%51.2%

75.8%

0.0%

25.0%

50.0%

75.0%

100.0%


Return on assets Return on capital employ edReturn on equity Return on inv ested capital

Maintaining healthy EBITDAmargin is the key



Order Book...Post CWG (38% cagr in Order inflow FY10-12E)

ACIL’s order book largely comprises construction of buildings in residential, commercial,hotels, hospitals, and institutional and retail segments. These segments account for 80%of the current order book and the share of infrastructure has increased from nil in FY07to 20%. ACIL is focusing on increasing its exposure in this segment, especially in powerand urban infrastructure.

We forecast 10% growth in net order book in FY11 and 22% in FY12 as infra, power andcommercial orders improve. We estimate order inflow to increase at 38% CAGR overFY11-12. Despite a 110% CAGR in order book over FY07-10, the net order book has beenstable at ~Rs30bn due to increase in execution capabilities. Going forward, we expectincreased traction in the infrastructure segment and execution levels to stabilize, thusdriving the net order book position.

Inflow CAGR of 38% over FY10-12E


15.6% CAGR over FY10-12E


5.1

30

16.45

15.65

1215.28

1.70

9

18

27

36

FY07 FY08 FY09 FY10 FY11E FY12E

(Rs

bn)

Q1FY11 Order inflow

Already booked Rs5.1bnof orders in Q1FY11

31.5

93.7

68.0

53.141.4 40.2

32.930.030.029.3

0

30

60

90

120

FY08 FY09 FY10 FY11E FY12E

(Rs

bn)

Gross Order Book Net Order Book



Recent order wins in infra - decent entry in the space

Electrification work for Commonwealth Games - 2010 at Dr.Karani Singh ShootingRange, Tuglakabad, and Indira Gandhi Indoor Stadium Complex New Delhi forCPWD

Construction of New Integrated Passenger Terminal Building at Birsa MundaAirport, Ranchi, Jharkhand, for Airport Authority of India

Construction of three Elevated Metro Stations, Tollgate, Hosahall and VijaynagarStations, in Reach-2 for Bangalore Metro Rail Project, Phase-I

Construction and architectural services for Dwarka depot for Delhi Airport MetroExpress Pvt. Ltd

Civil Work for VAG Corridor MRTS Project for Mumbai Metro One

Keen on BOT projects

ACIL is looking at new business opportunities in multi-level-car parking and bus, rail,and airport terminal projects in Delhi, Punjab, Gujarat and Orissa. The company hasalready secured a prestigious BOT (Build Operate Transfer) project at Kota, Rajasthan,comprising a bus terminal with commercial complex of Rs 720 mn, to be licensed for 40years.

Salient features of the project are:

The sole owner of the property will be the Rajasthan State Road Transport Corp. (RSRTC)and ACIL has been roped in as a developer. The site is located on DCM Road, Kota City,and the property spans 26343 sqm. The scope of work for ACIL is to construct a busterminal with a workshop and a commercial complex. The total cost of development isestimated at Rs720mn with completion time of 18 months from the date of LOA.

The built-up area for RSRTC is 3300 sqm, whereas total built-up area available is 23000sqm. ACIL will receive rights over: (i) Licensing revenue and premium from built-upcommercial area for 40 years after paying licensing fee applicable to RSRTC. (ii) Parkingrevenue from underground area, and (iii) 50% Advertisement revenue.

We are awaiting the final fine print of the project and financial closure; we are yet tofactor this into our valuations, but we have accounted for revenue potential, which isincluded in the order book at Rs640mn.

Net current order book mix


Residential32%

Hotel14%

Hospital7%

Infrastructure19% BOT

2%

Institutional7%

Retail4%

Commercial15%



Historic Avg.PE & earning growth FY07 FY08 FY09 FY10

Avg 1yr forward PE 15 21 9 9

Earning growth 61.2% 65.5% 11.8% 41.8%


Valuations and Recommendation

ACIL is trading at FY11E and FY12E P/E of 13x and 10x respectively, which, we believe, isattractive considering its historical valuation and earning prospects.

Historic valuations and earnings growth provide further room…

ACIL has a consistent record of trading at a premium; during FY07, the stock traded ataverage P/E of 15x, and later at 21x, led by earnings growth of 62% over FY07-09. Earningsslowed down in FY09, only due to higher depreciation charges as capex during FY07-08was Rs1100mn, increasing depreciation in FY09 by 103%. Thus, earnings grew only 12%,but cash profit from operations rose 40%. Earnings growth was back on track in FY10 at42%. The stock’s one-year forward average P/E has been healthy at 9x, even in the badeconomy/market phase of FY09-10.

We forecast healthy earnings growth of 25% over FY11-12; there is scope for furtherimprovement if infrastructure order wins kick in as the company is keen on increasingits exposure in the urban infra space. However, earnings growth would still be below thelevels recorded in FY07-10. Thus, given the current order book scenario, we do not expectACIL to return to the premium valuation of FY07-09. Still, we would like to highlight thatthe company’s return parameters are exceptional and well above those of peers, whichincreases our confidence about likely improvement in valuation from current levels.Given its quality of returns, healthy balance sheet and strong working capitalmanagement, we assign a P/E of 13x, which is in line with its average valuationsince listing; this is because we believe that the company has the requisite abilitiesto scale up and attain a substantial portion of the premium valuation it commandedduring FY07-09.

but cash profit grew at 40%

1-yr forward P/E Avg of 13.1x


21.8x

13.1x

4.4x0

11

22

33

44

Feb-07 Jan-08 Dec-08 Nov -09 Sep-10

(x)

Daily PE Av erage Av +1 Std Dev Av -1 Std Dev



Risks

Financial implications of entry into the infra space

A major risk is ACIL’s aggressive plan to increase order book in urban infra and BOTprojects, as it could impact on its financials parameters. Until date, the company hasbeen enjoying excellent return ratios. However, high exposure to infrastructure projectswill increase working capital requirements, which could impact return ratios (RoE andRoCE) and valuation. Nevertheless, we believe that ACIL is managing its working capitalwell. Further, infra forms only 20% of its order book currently and thus an immediateimpact on the balance sheet is unlikely given its healthy cash position.

Peer valuationCMP EPS PE EV/Ebidta RoE

Particulars 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E

Man Infraconstruction 361 20.0 22.6 27.6 18.1 16.0 13.1 10.1 8.1 5.9 24.0 23.4 24.3

BL Kashyap 41 2.0 2.6 2.9 21.2 16.1 14.1 14.3 11.9 10.4 8.2 9.8 11.2

Simplex Infra 483 25.7 32.9 41.1 18.8 14.7 11.8 6.7 6.9 5.7 13.5 15.6 16.5

CCCL 83 5.0 5.7 7.6 16.7 14.5 10.9 9.2 7.5 6.1 16.6 16.6 18.8

Ahluwalia Contracts 213 13.0 16.3 20.5 16.1 12.9 10.3 7.3 5.9 4.8 38.0 34.0 31.2

Unity Infraprojects 117 12.5 14.1 17.2 9.3 8.2 6.8 7.0 5.8 4.8 17.4 17.1 17.8

Mcap Sales Ebidta Margin PAT Margin Earning growth

Particulars Rs bn 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E

Man Infraconstruction 17.8 5.5 8.8 12.5 28.0 21.5 21.1 16.2 12.7 11.0 4.4 13.2 22.1

BL Kashyap 8.5 10.5 12.7 14.6 8.6 8.5 8.5 3.8 4.2 4.1 -41.8 32.0 14.0

Simplex Infra 23.9 45.5 53.8 64.4 11.7 9.7 9.8 2.8 3.0 3.2 3.0 28.0 24.9

CCCL 15.3 19.8 24.4 31.2 9.3 9.2 9.2 4.6 4.3 4.5 27.1 15.5 33.4

Ahluwalia Contracts 13.2 15.7 18.7 22.8 11.1 11.5 11.7 5.2 5.5 5.6 41.7 25.3 25.3

Unity Infraprojects 8.6 15.3 18.5 22.2 12.9 13.0 13.0 5.6 5.7 5.7 18.6 13.4 21.7

Source: Bloomberg, PINC Research

1yr fwd P/E 1 yr fwd EV/EBITDA

22X

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

Income Statement FY08 FY09 FY10 FY11E FY12E

Year Ended March (Figures in Rs mn)

Balance Sheet FY08 FY09 FY10 FY11E FY12E

Cash Flow Statement FY08 FY09 FY10 FY11E FY12E

Key Ratios FY08 FY09 FY10 FY11E FY12E


RESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

Revenues 8,801 11,641 15,677 18,737 22,808

Growth (%) 31.5 32.3 34.7 19.5 21.7

Operating Profit 1,063 1,446 1,736 2,155 2,669

Other Income 65 79 58 60 70

EBIDTA 1,128 1,525 1,794 2,215 2,739

Growth (%) 50.4 35.2 17.6 23.5 23.6

Depreciation & Amortization 228 464 331 385 475

EBIT 899 1,060 1,463 1,830 2,264

Interest Charges (Net) 118 181 210 283 327

PBT (Before E/o items) 781 880 1,252 1,547 1,936

Tax provision 265 302 434 522 652

E/o Income / (Loss) - - - - -

Net Profits 516 577 818 1,025 1,284

Adjusted Net Profits 516 577 818 1,025 1,284

Growth (%) 65.5 11.8 41.8 25.3 25.3

Basic EPS (Rs) 8.2 9.2 13.0 16.3 20.5

Diluted EPS (Rs) 8.2 9.2 13.0 16.3 20.5

Growth (%) 65.5 11.8 41.8 25.3 25.3

Profit before tax 781 880 1,252 1,547 1,936

Depreciation 228 464 331 385 475

Income from inv & int. (profit) (36) (46) (43) - -

Interest paid 74 135 158 283 327

Taxes (291) (376) (458) (553) (692)

(Inc)/Dec in working capital 447 (942) (274) 165 (534)

Other operating activities (6) (17) (7) - -

Cash from operations 1,196 98 958 1,827 1,512

Net capital expenditure (668) (470) (399) (740) (600)

Net Investments - 41 (65) (10) (10)

Interest & dividend recd 43 54 50 - -

Cash from inv. activities (625) (375) (414) (750) (610)

Equity raised/(repaid) - - (0) - -

Debt raised/(repaid) (27) 197 475 300 250

Dividend (incl. tax) (22) (51) (51) (59) (59)

Other financing activities (74) (135) (158) (283) (327)

Cash from finan. activities (123) 10 266 (42) (136)

Inc/(Dec.) in cash 448 (267) 811 1,035 765

Equity Share Capital 126 126 126 126 126

Reserves & Surplus 1,124 1,650 2,409 3,375 4,600

Shareholders' Funds 1,250 1,776 2,535 3,501 4,726

Minorities Interest - - - - -

Total Debt 565 762 1,238 1,538 1,788

Capital Employed 1,815 2,538 3,772 5,038 6,514

Fixed Assets 1,206 1,209 1,278 1,633 1,758

Cash & cash eq. 1,167 897 1,708 2,743 3,508

Net current assets 529 1,188 2,264 3,130 4,426

Investments 42 15 80 90 100

Deferred tax asset 38 125 150 185 230

Total Assets 1,815 2,538 3,772 5,038 6,514

OPM (%) 12.1 12.4 11.1 11.5 11.7

Net Margin (%) 5.9 5.0 5.2 5.5 5.6

Dividend Yield (%) 0.3 0.3 0.4 0.4 0.4

Net Debt/Equity (x) (0.5) (0.1) (0.2) (0.3) (0.4)

Net working capital (days) (26) 9 13 8 15

ROACE (%) 57.9 48.7 46.4 41.5 39.2

ROANW (%) 53.0 38.2 38.0 34.0 31.2

EV/Sales (x) 1.5 1.1 0.8 0.7 0.6

EV/EBIDTA (x) 12.1 8.9 7.4 6.0 4.8

PER (x) 25.8 23.1 16.3 13.0 10.4

PCE (x) 17.9 12.8 11.6 9.4 7.6

Price/Book (x) 9.7 7.0 5.0 3.7 2.7

17X

12X

7X

2X

9.6X

7.0X

4.3X

1.6X

[email protected] [email protected] 14

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125

250

375

500

Sep-07 Sep-08 Sep-09 Sep-100

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RESEARCHRESEARCHRESEARCHRESEARCHRESEARCHCONSOLIDATED CONSTRUCTION CONSORTIUM LTD.

The BusinessCCCL's core business is civil construction, which is divided into two verticals: Buildingsand factories and infrastructure. These verticals are further sub-divided as follows:

CCCL provides design, engineering, procurement, construction, and projectmanagement services. It has adopted a concentric integration initiative to provide end-to-end integrated solutions, right from conceptualization to completion of projects viadevelopment or achievement of key competencies (acquire or develop in-house). Itsservices comprise mechanical and electrical, plumbing, fire-fighting, heating, ventilationand air-conditioning, interior fit-out services and glazing solutions. These services arealso extended to external clients apart from aiding internal orders. Such initiatives havehelped the company complete work on time and gain customer satisfaction, thus resultingin repeat orders.

Business segments

CCCL

Buildings & Factories

Factories

Commercial & Inst.

Residential

IT-ITES

Infrastructure

Flyovers & Bridges

Power Plant

Metro Rail


Railways

Airport

Ports

Concentric integrated model


Indust

rial

Constru

ction

Residential construction

Glazing

soluti

on

Interior

Solution

& Design

Consultancy

Commerc

ial con

structio

n

Mechanical and

Electrical works

Building Materials

(RMC/Solid Blocks)

Infrastructure Construction

Core CivilConstruction




Investment argument

Diversified order book provides growth impetus

Robust order inflow expected at 50% CAGR over FY10-12

CCCL operates in four key segments: Commercial, industrial, infrastructure andresidential. It is involved in civil structural work in all of these segments. The currentorder book of 111 jobs stands at Rs45.3bn (2.3x FY10 revenue); infrastructure accountsfor a major chunk of 53%, followed by commercial (35%), industrial (9%), and residential(3%). Almost 59% of the total order book comprises price-protected orders; 21% is atfixed prices and the rest are without material supply contracts.

We expect order inflow CAGR of 50% over FY10-12; we estimate inflow of Rs42.5bn inFY11, of which Rs17.1bn was already booked in Q1FY11, and Rs48.7bn in FY12, owing togood traction in inflow from the infra space.

Order book growth


2.66.6

18.0

26.533.2 33.9

52.8

71.5

0.0

20.0

40.0

60.0

80.0

2005 2006 2007 2008 2009 2010 2011E 2012E

(Rs

bn)

CAGR of 60.6% over 2005-12

Order Inflow growth


CAGR 50% FY10-12E

29.0

42.5

48.7

21.717.2

8.43.9

0.0

15.0

30.0

45.0

60.0


(Rs

bn)

Commercial Industrial Infrastructure Residential



Changing mix toward infra orders

Until FY08, CCCL specialized in commercial and industrials projects, which formed~84% of its total order backlog. With concentration of infrastructure orders, the ratiodeclined to 60% in FY10, CCCL since FY08 has continuously build its Infra capabilities &in Q1FY11 the proportion of infra orders expanded to 53% of order book.

Expanding share of infraorders

Order book composition


Declining share ofcommercial orders

we expect inflow compositionto be tilted towards infra

orders

Order inflow composition


74.7 63.7 69.2 35.2 60.0 26.0 26.1

23.225.4 16.3

15.3

24.1

13.5 13.6

11.0 12.9

47.9

9.8

58.9 59.0

2.1 1.31.56.01.71.5

0%

25%

50%

75%

100%



78.1 70.1 74.6 40.8 45.9 31.5 26.1

18.918.6 9.5

14.013.7

11.810.8

11.1

43.3 35.653.4 60.6

4.8 1.8 4.8 3.2 2.51.63.0

0%

25%

50%

75%

100%



9.6



Infrastructure to spearhead growth

In the infra space, CCCL undertakes construction of flyovers, viaducts, metro stations,and the civil component of power plants. The management’s strategy to diversify itsorder book in the infrastructure segment has started yielding results with the segmentforming 53% of the current order book (from 11% in FY08). Venturing into the infra spacehas helped the company secure big-ticket orders and has improved its order bookposition, which provides good visibility of earnings (2.3x FY10 OB/sales).

Chennai airport - a game changer

The big push for CCCL’s infrastructure segment started in late-2008, CCCL won amilestone project (expansion of the Chennai airport) worth Rs12.1bn from AirportAuthority of India. The project was won based on the track record of CCCL in successfullyexecuting minor airports in India and the technological qualification brought in by HPI.

The company will execute the project in a JV with Canada-based Herve PomerleauInternational (HPI), which will provide technical guidance and oversee execution of theproject.

The scope of work includes development of Kamaraj Domestic Terminal phase II,renovation of the existing terminal, expansion of Anna International Terminal, andconstruction of multi-level car parking. The capacity of the airport after completion wouldbe enhanced four-fold to 16mn passengers p.a. and the parking facility wouldaccommodate about 2600 cars.

Furthermore, the company bagged a contract worth Rs680mn for building a cargocomplex within the airport. The project is likely to be completed by Q3FY12.

Status of Airport ordersClient Rs mn Remark

Goa Airport 2,047 Ongoing

Chennai Airport 12,800 Ongoing, likely completion by Q3FY12

Rajamundhry Airport 2,050 Ongoing, likely completion by Q2FY11

Trichy Airport 470 Completed

Dehradun Airport 450 Completed

Mangalore Airport 860 Completed

Trivandrum Airport 1,470 Completed




Urban infra to play pivotal role in infra order inflow

Since marking its presence in the infra space in 2008 with the Chennai airport project.It has secured orders from Chennai Metro Rail for construction of Metro stations andviaducts, civil work for power plants, and refinery works, and recently, it also bagged theGoa airport project. CCCL already received orders of Rs13.4bn in the infrastructuresegment in 1Q FY11 and we expect inflow of Rs25bn in FY11 and Rs28.8bn in FY12.

Balance of Plant in power projects emerges as a new growth driver

The company incorporated a new subsidiary, CCCL Power Infrastructure Services Ltd.,for implementing Balance of Plant (BOP) and EPC power projects. CCCL secured a BOPproject from Ind Bharath, which is being implemented through a JV, CCCL EDAC EnergyLtd.; the company will handle the civil portion and EDAC Energy will take care of balancework. CCCL is also in talks with private power developers and expects to bag its first fullBoP order soon fully under own banner.

Commercial segment – reducing mix in OB

Under this segment, CCCL undertakes construction of office spaces, educationalinstitutions, hostels, hospitals, IT parks, SEZs, and other commercial establishments.Historically, until FY08, this segment played a crucial role in the company’s growth withcontribution of more than 60% to the top line and 65% to order inflow. Currently, itcomprises 35% of the total order backlog at Rs15.6bn.

Infra order inflow


13.4

0.2 2.2 2.2

13.9

2.1

11.6

28.8

0

10

20

30

40

2006 2007 2008 2009 2010 2011E 2012E

(Rs

bn)

Rs13.4bn already received in Q1FY11,full year inflow target of Rs25bn

Missed close to Rs30bn oforders by marginal difference

Key orders bagged recently in infrastructureClient Rs mn Remark

Ind Bharath II 5250 EPC in Thermal Power plant

Meenakshi Power energy 3540 EPC in Power plant

Chennai metro Rail 2345 Elevated station & Viaduct

Goa Airport 2047 Expansion of airport


Management is expecting tobag a BoP project sooner



As demand in the institutional space has started picking up, CCCL is focused on the IT/ITES space, as it derives majority of orders in this segment from the IT companies. Weestimate order inflow of ~Rs11bn and Rs12.7bn in FY11 and FY12, and 42% and 36% ofrevenue during the respective periods. Key projects executed until date in this segmentare RMZ Millenia, Ascendas IT Park, STPI Chennai, AMTI Tech Park, and K Raheja ITPark.

Industrial segment is capex-drivenCCCL undertakes construction of industrial facilities, warehouses, utility buildings, andworkshops on a turnkey basis. The company implements projects from design andconceptualization to completion. This segment has contributed 20-33% to the top lineover the past five years; with increasing share of the infra space, we estimate this segment’stop-line contribution to be ~18% in FY11 and FY12. We expect order inflow of Rs5.7bnand Rs6.6bn in FY11 and FY12 respectively.

Key projects executed until date under this segment are Eveready inds, ITC Biscuitfactory, Mann & Hummel Filters India, WEP Peripherals Ltd., Motor industries, andCarborundum Universal.

Commercial order inflow toremain flat

Commercial order inflow


2.96.1

12.5 11.910.2

13.0 8.1 12.7

0

4

8

12

16

2006 2007 2008 2009 2010 2011E 2012E

(Rs

bn)

Rs 2.9bn received in Q1FY11, fullyear inflow target of Rs11.1bn

Industrial order inflow


0.81.9

5.0

2.84.4

5.25.0 6.6

0

2

4

6

8

2006 2007 2008 2009 2010 2011E 2012E

(Rs

bn)

Rs0.8bn received in Q1FY11, fullyear inflow target of Rs5.8bn



Better working capital management and risk mitigation in place

Since inception, working capital management has been a priority for CCCL and it hastaken numerous steps to manage resources efficiently. The company has its own controlsystem in place for each level of operations; all activities are centrally planned and de-centrally executed; if a bill is raised, it has to undergo certain checks before it is approved,and hence, inflation of bills is curbed. The company has maintained good relationshipwith its vendors and does not have any history of delayed payments; it is probably theonly company in India to host vendors’ meet annually to address issues. This has helpedCCCL meet its raw material needs in a timely manner. It has also developed in-houseERP software for procurement and supply chain, project implementation, and operationfunctions, which have resulted in integration of operations and procedures and enabledCCCL to track and manage operations on a real-time basis.

Consequently, CCCL’s working capital management is among the best in the industry,although recently, working capital days (excluding cash) increased slightly owing to thelong-gestation infrastructure orders (117 days); we expect it to stabilize at 102 days aspayment schedules in the airport project have stabilised well as the company raises abill every 15 days.

we expect working capitaldays to improve from FY10

levels

Working capital days


196197205

169170153

122

102102

117

82

807460

108104

10898

8366

50

0

60

120

180

240


(Day

s)

Inv entory Working Capital (ex cash) Creditors

No litigation history andholds yearly vendor meets



RoE


0

12

24

36

48

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

BL Kashy ap Simplex Infra CCCL Ahluw alia Unity

uptick seen in FY12 to 18.8%

Total Asset Turnover


Better asset turnover engenders strong return ratios

CCCL’s return ratios are among the best in the industry with return on capital employedat 20.5% and return on equity at 16.6% as of FY10. It maintains strict internal targets forbidding for each project with RoCE of 25%. Further, our five-step DuPont analysis suggeststhat the company has industry-leading asset turnover at 2.3x and lower leverage. RoEhas now stabilized at 16.6% from 30.2%, with total asset turnover settling at 2.3x from3.7x, since CCCL incurred sizeable capex during FY06 -10. We expect uptick in RoE to18.8% in FY12 due to improvement in asset turnover as majority of the capex for infraprojects under execution has been incurred and we expect nominal avg. capex of Rs470mn for FY11-12, as we factor future infra orders not as capital intensive as the chennaiairport.

Capex to stabilise

2.42.22.3

2.7

3.23.5

3.7

1.91.92.01.81.92.3

3.7

1.21.21.21.31.31.4

1.9

0.0

1.0

2.0

3.0

4.0

2006 2007 2008 2009 2010 2011E 2012E

(x)

CCCL Ahluw alia Unity Infra

447493

382

706

346404

9448

130

200

400

600

800

2004 2005 2006 2007 2008 2009 2010 2011E 2012E

(Rs

mn)



Asset ownership business - future growth drivers

CCCL’s entire asset business falls under its infrastructure vertical, CCCL InfrastructureLtd. Currently, the vertical has one SEZ in the development phase and L1 status in twomulti-level car park BOT projects; it is also bidding for road BOT projects. CCCLInfrastructure recorded a minor loss of Rs26mn in FY10.

Pearl City Food Port SEZ

CCCL, through its CCCL Infrastructure subsidiary, is developing a first-of-its-kind foodprocessing SEZ and integrated township, Pearl City Food Port SEZ, in Tuticorin district,Tamil Nadu. The company has acquired ~1,000 acres of land and ~300 acres has alreadybeen notified for SEZ status; the average rate for land acquisition was Rs0.1mn/acre andCCCL invested ~Rs150mn in the project.

The SEZ will operate on a lease model and it has already roped in a tenant, Hexa, a honeymaker, which is likely to start production soon.

The SEZ facility would include cold storage, warehousing, irradiation complex, foodtesting laboratory and logistics planning, as well as a wide variety of plants for processingof foods including grains, oils and vegetables. The SEZ envisages housing more than 20food manufacturing plants, housing development and retail complexes, hospitals,schools, and 18-hole golf courses.

The SEZ has excellent connectivity with Tuticorin Port, which is 30km away; the portalready handles majority of food imports and exports such as rice, wheat, potato, onion,seafood, and spices. It is also well connected with other modes of transportation withTuticorin railway station and Tuticorin airport 25km and 15km away from the site,respectively.

Company Structure

CCCL

Subsidiaries

Joint Ventures &Associates

Consolidated InteriorsLtd. (100%)

Yuga Developers (25%)

Nobel ConsolidatedGlazings Ltd. (100%)

Yuga Builders (50%)

CCCL Infrastructure Ltd.(100%)

HPI-CCCL JV

Pearl City FoodPort SEZ

BOT Projects (CarPark & Roads)




We do not include this project in our valuation, as it is at a nascent stage.

Multi-level car parking

CCCL is a L1 bidder for two multi-level car parking BOT project from DMRC, one inSouth Extension and another in Rani Bagh, with a concession period of 35 years. CCCLhas entered into a JV with Samjung Tech (subsidiary of Samsung) for supply of electronicequipment for automated components in car parks, where CCCL will be responsible fordesign and civil construction.

Likely dilution in Infra arm

At the parent level, CCCL is comfortably positioned with debt-equity ratio of 0.6x inFY11E; we estimate that it would require less that Rs1bn of capex over the next two yearsto drive growth, which can be easily funded via internal accruals. However, itsinfrastructure arm, CCCL Infrastructure, would require funding for the SEZ project orthe car parking BOT project.

Subsidiaries

Consolidated Interiors Ltd. (CIL)

CIL provides interior contracting and fit-out services. Apart from catering to CCCL, thecompany provides services to third-party clients across public and private sectors.

CIL’s services encompass manufacture of wood-based products (doors and windows),flooring, ceilings, paneling, and custom-built furniture for commercial and residentialstructures. The company plans to employ an interior design team to add value to itscurrent offering. It is also looking out for a dedicated facility for its fabrication operations.

The company recorded 11.4% revenue CAGR over the past three years, due to 64% YoYdecline in its top line in FY10 with slowdown in the IT/ITES industry, which accounts fora major proportion of its orders. Nevertheless, revival in this industry is reflected in surgein CIL’s order book, which stood at Rs510mn as of end-Q1FY11 with a shorter executioncycle of ~12 months; we believe, this will translate into revenue CAGR of 71.9% over thenext two years.

CIL Income statementParticulars 2007 2008 2009 2010 2011E 2012E Q1FY11

Net Sales 157 266 602 217 494 642 136.5

Gr. (%) 69.5 126.2 (64.0) 127.4 30.0 -

Operating Profit 23 17 48 18 39 51 6.3

OPM Margin 14.6 6.3 8.0 8.2 8.0 8.0 4.6

PBT 22 13 37 2 20 26 3.28

PAT 14 8 24 1 13 17 2.16

PAT Margin 9.1 3.2 4.1 0.5 2.6 2.6 1.6




Nobel Consolidated Glazings Ltd. (NCGL)

NCGL was incorporated in May-07 after CCCL entered into a MoU with promoters ofNoble Associates. The company aims to provide in-house glazing and aluminiumfabrication services.

Unlike CIL, NCGL has performed well in the past couple of years with revenue CAGR of105% over the past two years. However, it has been subdued in bagging orders in thepast year; we expect this to result in lower top-line growth of 2% YoY in FY11 and a CAGRof 15.2% over FY10-12E.

JVs and alliances

Yuga Developers

Yuga Developers, constituted in Jul-05, was formed as a JV between AmbatturConstructions (50%), Yuga Homes Ltd. (25%) and CCCL (25%). The company plans todevelop a group housing project in Thiruverkadu village, Chennai, consisting of 450apartments.

Yuga Builders

Yuga Builders, incorporated in Nov-06, is a 50:50 JV between CCCL and Yuga Homes Ltd.The entity would undertake three group housing projects consisting of 930 apartmentsat Koyambedu (230), Vandalur (150) and Thayyur (550), Chennai.

We do not expect further equity infusion in these projects by CCCL, whereas wheneverthe project gets on stream the construction order is expectedted to flow into CCCL’sbooks.

NCGL Income StatementParticulars 2008 2009 2010 2011E 2012E Q1FY11

Net Sales 139 260 583 595 774 125.2

Gr (%) - 87.4 124.1 2.0 30.0 -

Operating profit 15 26 42 63 81 14.38

OPM 10.7 9.9 7.2 10.5 10.5 11.5

PBT 14 25 34 54 68 11.3

PAT 9 16 22 35 45 8

Net Margin 6.8 6.1 3.7 5.9 5.8 6.0




Valuations and RecommendationHistorically, the stock has been trading at an average of 19.5x one year forward since thelisting Oct 2007, with average yearly peak valuation of 44.1x in FY08 and low of 11.6x inFY10, which we believe is high and not a fair depiction of CCCL’s future valuationmultiple. We also note that over the last one year the stock has been trading at one yearforward avearage of 14x with a high of 16.6x and low of 11x, which on the otherhand ismore likelihood of its future valuation multiple given the current earnings perspective.The reason behind its rich valuations are its managerial ability to build a sizeable businessin a decades time, quick traction shown in the infrastructure segment (53% of OB from10% in FY07), superior return ratios (RoCE and RoE) and better working capitalmanagement. We believe the stock to trade in the range of 14-15x, given its strong orderbook position and earning growth to flow back at 15.5% and 33.4% in FY11 & FY12, hence weassign a PE multiple of 14x to FY12E earnings of Rs7.6, which yields a target price of Rs107;this implies potential upside of ~29% from the current level. We initiate coverage on CCCLwith a ‘BUY’ rating. We do not value the SEZ project (nascent stage of development) or anyreal estate projects, which can provide further upside to the stock.

Key risks to our target price are 1) lower-than-expected order inflow, 2) elongatedworking capital cycle, and 3) increase in raw material cost.

Avg 1-yr forward P/E of 19.5x

Source: PINC Research

32x

19.5x

7x0

15

30

45

60

Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov -09 Apr-10 Sep-10

Daily PE Av +1 Std Dev Av -1 Std Dev

Peer valuationCMP EPS PE EV/Ebidta RoE

Particulars 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E

Man Infraconstruction 361 20.0 22.6 27.6 18.1 16.0 13.1 10.1 8.1 5.9 24.0 23.4 24.3

BL Kashyap 41 2.0 2.6 2.9 21.2 16.1 14.1 14.3 11.9 10.4 8.2 9.8 11.2

Simplex Infra 483 25.7 32.9 41.1 18.8 14.7 11.8 6.7 6.9 5.7 13.5 15.6 16.5

CCCL 83 5.0 5.7 7.6 16.7 14.5 10.9 9.2 7.5 6.1 16.6 16.6 18.8

Ahluwalia Contracts 213 13.0 16.3 20.5 16.1 12.9 10.3 7.3 5.9 4.8 38.0 34.0 31.2

Unity Infraprojects 117 12.5 14.1 17.2 9.3 8.2 6.8 7.0 5.8 4.8 17.4 17.1 17.8

Mcap Sales Ebidta Margin PAT Margin Earning growth

Particulars Rs bn 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E 2010 2011E 2012E

Man Infraconstruction 17.8 5.5 8.8 12.5 28.0 21.5 21.1 16.2 12.7 11.0 4.4 13.2 22.1

BL Kashyap 8.5 10.5 12.7 14.6 8.6 8.5 8.5 3.8 4.2 4.1 -41.8 32.0 14.0

Simplex Infra 23.9 45.5 53.8 64.4 11.7 9.7 9.8 2.8 3.0 3.2 3.0 28.0 24.9

CCCL 15.3 19.8 24.4 31.2 9.3 9.2 9.2 4.6 4.3 4.5 27.1 15.5 33.4

Ahluwalia Contracts 13.2 15.7 18.7 22.8 11.1 11.5 11.7 5.2 5.5 5.6 41.7 25.3 25.3

Unity Infraprojects 8.6 15.3 18.5 22.2 12.9 13.0 13.0 5.6 5.7 5.7 18.6 13.4 21.7

Source: Bloomberg, PINC Research



Background

CCCL specializes in integrated turnkey construction services across verticals (industrial,commercial, residential and infrastructure). The company is promoted by four ex-L&Temployees having extensive experience of more than 30 years in the construction industry.It was incorporated in Jul-97 in Chennai with initial capital of Rs10mn, majority of whichwas from Mr Sarabeswar. CCCL booked its first order of Rs30mn in the first year ofoperation and ended the year with turnover of Rs40mn. In three years, the companyachieved turnover of ~Rs1bn, far exceeding its internal targets. Since then, CCCL hasperformed consistently, recording turnover of Rs19.5bn in 2010. The companyimplements projects for both private and public sector clients.

Key management personnel

R Sarabeswar: Promoter, Chairman and CEO of CCCL; he is a gold medalist in civilengineering and holds a management degree in strategy from London University. Hehas more than 30 years of experience in the construction sector and has previouslyworked for L&T, SPIC, and Shobhakshi group.

S Sivaramakrishnan: Promoter and Managing Director; he is also a gold medalist incivil engineering and holds a post graduate degree in structural engineering and amasters degree in business administration. He has more than 30 years of experienceand has worked with L&T (ECC division) and SPIC (design department).

V G Janarthanam: Promoter and Director; he takes care of operations. He holds a degreein civil engineering and has more than 15 years of experience in the construction sector.He has also worked with L&T and specializes in tendering and contract management.

T R Seetharaman: Promoter and CFO; he is a chartered accountant by profession andhas more than 23 years of experience in finance, engineering and construction. He hasalso worked with L&T’s ECC division as a manager.

Prie/BV Band Prie/BV

25X

RESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCHRESEARCH

Income Statement FY08 FY09 FY10 FY11E FY12E

Year Ended March (Figures in Rs mn)

Balance Sheet FY08 FY09 FY10 FY11E FY12E

Cash Flow Statement FY08 FY09 FY10 FY11E FY12E

Key Ratios FY08 FY09 FY10 FY11E FY12E


Revenues 14,757 18,413 19,759 24,412 31,173

Growth (%) 70.9 24.8 7.3 23.5 27.7

Operating Profit 1,392 1,223 1,847 2,246 2,868

Other Income 78 94 64 75 82

EBIDTA 1,470 1,317 1,911 2,321 2,950

Growth (%) 96.9 (10.4) 45.1 21.5 27.1

Depreciation & Amortization 56 89 110 131 154

EBIT 1,415 1,228 1,801 2,190 2,796

Interest Charges (Net) 74 118 326 451 547

PBT (Before E/o items) 1,341 1,110 1,474 1,739 2,249

Tax provision 452 382 504 591 765

E/o Income / (Loss) - - - - -

Net Profits 889 728 916 1,058 1,411

Adjusted Net Profits 889 728 916 1,058 1,411

Growth (%) 86.5 (18.1) 25.8 15.5 33.4

Basic EPS (Rs) 4.8 3.9 5.0 5.7 7.6

Diluted EPS (Rs) 4.8 3.9 5.0 5.7 7.6

Growth (%) 86.5 (18.1) 25.8 15.5 33.4

Profit before tax 889 728 916 1,739 2,249

Depreciation 56 89 110 131 154

Income from inv & int. (profit) (78) (94) (64) (75) (82)

Interest paid 74 118 326 451 547

Taxes (322) (235) (377) (470) (607)

(Inc)/Dec in working capital (1,590) (888) (2,206) (481) (1,847)

Other operating activities 327 400 563 122 157

Cash from operations (646) 118 (732) 1,418 571

Net capital expenditure (367) (708) (382) (493) (447)

Net Investments (991) 422 475 90 74

Interest & dividend recd - - 64 90 82

Cash from inv. activities (1,358) (286) 156 (314) (291)

Equity raised/(repaid) 1,887 - - - -

Debt raised/(repaid) 100 721 1,412 931 676

Dividend (incl. tax) - (108) (108) (108) (108)

Other financing activities (74) (118) (326) (451) (547)

Cash from finan. activities 1,992 589 978 369 21

Inc/(Dec.) in cash (12) 422 403 1,473 301

Equity Share Capital 370 370 370 370 370

Reserves & Surplus 4,171 4,791 5,523 6,472 7,775

Shareholders' Funds 4,541 5,161 5,892 6,842 8,144

Minorities Interest - - - - -

Total Debt 1,255 1,975 3,388 4,317 4,993

Deferred Tax liability 296 442 595 717 875

Capital Employed 6,091 7,578 9,876 11,876 14,012

Fixed Assets 830 1,449 1,721 2,084 2,377

Cash & cash eq. 877 1,299 1,701 2,872 2,868

Net current assets 4,128 5,437 8,046 9,697 11,540

Investments 991 569 95 95 95

Total Assets 6,091 7,578 9,876 11,876 14,012

OPM (%) 9.4 6.6 9.3 9.2 9.2

Net Margin (%) 6.0 4.0 4.6 4.3 4.5

Dividend Yield (%) 0.6 0.6 0.6 0.6 0.6

Net Debt/Equity (x) 0.1 0.1 0.3 0.2 0.3

Net working capital (days) 80.4 82.0 117.2 102.0 101.5

ROACE (%) 30.6 18.1 20.9 20.5 21.9

ROANW (%) 27.7 15.0 16.6 16.6 18.8

EV/Sales (x) 1.1 0.9 0.9 0.7 0.6

EV/EBIDTA (x) 11.3 13.1 9.2 7.5 6.1

PER (x) 17.3 21.1 16.7 14.5 10.9

PCE (x) 16.2 18.8 14.9 12.9 9.8

Price/Book (x) 3.4 3.0 2.6 2.2 1.9

20X

15X

10X

5X


[email protected] [email protected] 29

0

15

30

45

60

Oct-07 Jul-08 Apr-09 Jan-10 Oct-10

Daily PE Median PE

0

60

120

180

240

Oct-07 Jul-08 Apr-09 Jan-10 Oct-10



Concerns

Geographical concentration risk

CCCL’s business has been historically concentrated in the southern region, largely inTamil Nadu and Karnataka. Although the company has been diversifying into otherparts of the country, it derives a substantial portion of revenue and ~72% of its order bookfrom South India. CCCL is implementing a few orders outside South India — ONGCproject worth ~Rs4bn and a DMRC car park project in Delhi.

Rise in raw material prices

Fixed-price orders form ~21.2% of the current order book. Although CCCL has builtsome cushion for rise in raw material prices while bidding, sharp increases pose a riskto margins.

Type of contracts


Without material contracts20% Fixed Price

21%

Price protected59%



Annexure

Construction industry - 35% CAGR over FY09 -13E

The government’s continued thrust on 9% growth in GDP will aid the construction andinfrastructure industry; with investment of $514bn in the XIth Plan and more than $1tr inthe XIIth Plan, the sector appears well positioned. CRISIL estimates the constructionindustry to grow at 35% CAGR over FY09-13 to Rs12.1tr. Demand for housing in urbanand rural India, expansion in industries and manufacturing units, rapid urbanization,and investment in centrally-sponsored schemes such as JNNURM, NHDP, NMDP, BharatNirman etc. will fuel growth in the sector.

Share of construction in overall GDP

Source: CRISIL PINC Research

Size of construction industry

Source: CRISIL, PINC Research

718 814 1016 1164 1294 1385 16962183 2378 2378

543544542

531481424

332188

146121

0

1000

2000

3000

4000

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

(Rs

bn)

Infrastructure Industrial

2,299 2,584 2,857 3,143 3,328 3,545

8.0%8.0%

8.1%8.0%

8.0%

7.7%

0

1,000

2,000

3,000

4,000

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

(Rs

bn)

7.6%

7.8%

8.0%

8.2%Construction Share of construction in ov erall GDP (RHS)



JNNURM Sector wise release of fund under UIG (Rs bn) Sector Number of Cost of proj. % of cost of Funds % of cost Yet to be % of cost

proj.sanctioned sanctioned proj. sanctioned released of project released of project

Drainage/Storm Water Drainage 71 84.6 14.5 15.3 13.8 69.3 81.9 Roads/Flyovers 94 75.7 13.0 8.7 7.8 67.0 88.5 Water Supply 151 195.6 33.6 44.0 39.6 151.6 77.5 Sewerage 110 134.7 23.1 23.9 21.5 110.8 82.3 Urban Renewal 11 4.8 0.8 0.9 0.8 3.9 81.3 Mass Transport System 19 47.7 8.2 11.4 10.3 36.3 76.1 Other Urban Transport 15 8.1 1.4 1.8 1.6 6.3 77.7 Solid Waste Management 41 22.3 3.8 4.2 3.8 18.1 81.2 Development of Heritage Areas 5 2.1 0.4 0.5 0.5 1.6 76.2 Preservation Water Bodies 4 1.2 0.2 0.2 0.2 1.0 84.6 Parking 3 5.7 1.0 0.2 0.2 5.5 96.8 Total 478 582.8 100.0 111.1 100.0 472 80.9

Source: JNNURM, PINC Research

Urban infrastructure

Urban infrastructure received a boost through the JNNURM project, the most ambitiousprogram of the UPA government, which entails fast-track development of projects inidentified cities. JNNURM includes varied activities such as urban renewal, urbantransport, storm water drainage, slum improvement and rehabilitation, water supply,solid waste management, and parking spaces.

JNNURM offers good opportunities in the urban infrastructure space, where Ahluwaliaand CCCL has a presence. Given that 81% of the central government's share is yet to bereleased from the sanctioned projects (as of Dec-09), it points to massive potential in thisspace.

The government is also focused on MRTS and BRTS for major cities. The constructionindustry has already benefited from metro projects in Delhi, Mumbai and Bangaloreand other cities such as Chennai, Hyderabad, Kochi and Kolkatta are proposing to adoptmetro. After the success of Ahmedabad, Delhi and Pune BRTS, some other major citiesintend to follow suit. BRTS projects for 422kms have been sanctioned for nine missioncities at a total cost of $1.1bn.

BRTS Kms

Pune 101.8

Pimpri Chinchwad 42.2

Indore 11.5

Bhopal 21.7

Ahmedabad 88.5

Jaipur 39.5

Vijaywada 15.5

Vizag 42.8

Rajkot 29.0

Surat 29.9

Total 422.3




MRTS Kms App. Cost ($mn)

Delhi 121.3 4,085

Mumbai 62.9 3,915

Bangalore 42.3 1,736

Kolkata 14.7 1,037

Chennai 46.5 3,106

Hyderabad 71.0 2,638

Cochin 25.3 617


Housing

Rapid urbanization, growing income levels, and rise in nuclear families have led todearth in housing. Demand for housing has outpaced supply despite new launches inthe mid-to-low income segment. CRISIL estimates overall housing shortage in India todecline to 75.5mn units by 2014 from 78.7mn units in 2008; this is based on thegovernment’s thrust on rural housing under Bharat Nirman Yojna and reducing slumsin urban areas under JNNURM. However, housing shortage in urban areas will continueto increase and will likely touch 21.7mn units by 2014 from 19.3 units at end-2008.

Urban housing shortage

0.82.6 2.6 3.2 3.1

15.1

18.4 19.320.5 21.7

0

7

14

21

28

2001 2005 2008 2010 2014

(mn

units

)

Immediate shortage Total shortage

Rural housing shortage


3430.1 26.7 26

19.7

64.3 62 59.4 59.253.8

0

20

40

60

80

2001 2005 2008 2010 2014

(mn

units

)

Immediate shortage Total shortage



Construction opportunity from industrial segment


381 335 313 258 216

101115 101

58 78

7950

55

50 51

15

67

91111

1413

1314

1529

3639

36

0

200

400

600

800

2010-11E 2011-12E 2012-13E 2013-14E 2014-15E

(Rs

bn)

Oil & Gas Metals Automobiles Petrochemicals Tex tiles Others

Industrial

Construction investment in the industrial segment is expected to grow 1.2x to Rs2505bnin FY11-15 over FY06-10, according to CRISIL. The overall share of industrial segment intotal construction investment will be nearly 15%. Revival in capex cycles of industrieswould play a pivotal role in the sector’s growth. Power and oil and gas will be primarygrowth drivers, followed by steel. The construction companies have already benefitedfrom ultra mega power projects (UMPPs) and are eyeing the rest of them. Expansion ofexisting refineries and Greenfield refinery projects will engender further opportunitiesfor the sector.


T E A M

EQUITY DESK

Sadanand Raje Head - Institutional Sales [email protected] 91-22-6618 6366Technical Analyst

Anil Chaurasia Equities [email protected] 91-22-6618 6483Rajeev Gupta Equities [email protected] 91-22-6618 6486Shailesh Kadam Derivatives [email protected] 91-22-6618 6349Ganesh Gokhale Derivatives [email protected] 91-22-6618 6347

Mehul Desai Head - Sales Trading [email protected] 91-22-6618 6303Naresh Panjnani Co-Head - Sales Trading [email protected] 91-22-6618 6333Amar Margaje [email protected] 91-22-6618 6327Ashok Savla [email protected] 91-22-6618 6321Raju Bhavsar [email protected] 91-22-6618 6322Manoj Parmar [email protected] 91-22-6618 6326Hasmukh D. Prajapati [email protected] 91-22-6618 6325Sajjid Lala [email protected] 91-22-6618 6337Chandani Bhatia [email protected] 91-22-6618 6324

SALES

DEALING

RESEARCH

Vineet Hetamasaria, CFA Auto, Cement [email protected] 91-22-6618 6388Nikhil Deshpande Auto, Auto Ancillary, Cement [email protected] 91-22-6618 6339Vinod Nair Construction, Power, Capital Goods [email protected] 91-22-6618 6379Ankit Babel Capital Goods [email protected] 91-22-6618 6551Hitul Gutka Power [email protected] 91-22-6618 6410Subramaniam Yadav Construction [email protected] 91-22-6618 6371Madhura Joshi Power [email protected] 91-22-6618 6395Satish Mishra Fertiliser, Engineering [email protected] 91-22-6618 6488Rohit Kumar Anand IT Services [email protected] 91-22-6618 6372Namrata Sharma Media [email protected] 91-22-6618 6412Karan Taurani IT Services [email protected] 91-22-6618 6382Bikash Bhalotia Metals, Mining [email protected] 91-22-6618 6387Harleen Babber Metals, Mining [email protected] 91-22-6618 6389Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393Chirag Dagli Pharma, FMCG, Fertiliser [email protected] 91-22-6618 6462Naveen Trivedi Pharma, FMCG [email protected] 91-22-6618 6384

Gaurang Gandhi [email protected] 91-22-6618 6400Hemang Gandhi [email protected] 91-22-6618 6400Ketan Gandhi [email protected] 91-22-6618 6400

DIRECTORS

COMPLIANCE

Rakesh Bhatia Head Compliance [email protected] 91-22-6618 6400

bright thinking

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