Building its Way to Progress - C&C Constructions

C & C Constructions is one of the fastest growing construction companies of India, with a focus on the infrastructure construction segment including highways, airports, telecom infrastructure and power transmission facilities. Incorporated in July 1996 by a group of professionals, it has rapidly achieved a turnover of Rs 750.1 crore as in 2009. It has completed 29 projects across India and Afghanistan, with aggregate contract value of over Rs 1,200 crore for clients like National Highways Authority of India (NHAI), Airports Authority of India (AAI), UNOPS, Republic of Afghanistan and Rites Limited.
The company has a unique business model with proven expertise in innovative thinking, project and cost management.
Its key objectives have been to continuously broad-base the operating portfolio and enhance the order book, thus opening new avenues to growth and profitability. The company has also developed an appropriate blend of entrepreneurs and hands-on professionals, constantly thinking and executing innovative and cost-effective solutions for clients’ requirements.
The revenue mix of the company consists mainly of roads and building wherein road construction constitutes 89 per cent (2009 revenue) and building contributes 11 per cent of the total revenues. Currently, out of the order book, 61 per cent are road contracts and 25 per cent are for building while the rest are related to railways, water sanitation and sewerage. The company is currently working on two BOT projects viz. the Kurali-Kiratpur Highway and the Mohali Complex with a total investment of Rs 410 crore and Rs 530 crore respectively.
C & C Constructions also has interests in the transmission tower business. The company has executed a number of projects for companies like Bharti Infotel and Tata Teleservices. The areas of expertise in this business are optical fiber cable (OFC) backbone projects, tower foundation and erection along with DG foundation and installation. Considering the huge opportunities in view of India’s need for more than 60,000 circuit kilometers of transmission network by 2012, the company is all set to tap a sizable chunk of orders in this segment.
The investment in the construction industry (mainly roads & highways) in India is pegged at USD 65 million or 15 per cent of the 11th Plan. This is expected to grow at a CAGR of 9 per cent owing to a growing focus on this segment. There has been an increasing emphasis on furthering the public-private partnership model for infrastructure development in the country by improving the road quality as only 50 per cent roads are paved, 12 per cent highways are four-laned and 56 per cent are two-laned highways. The NHDP Phase IV to VII is to be developed under the BOT model at an estimated cost of over Rs 1,00,000 crore. BOT is going to be a key component of development as the private sector is expected to contribute 34 per cent to the planned investment.
Additionally, Indian Railways has drawn up an ambitious dedicated freight corridor project under DFCC involving direct investment worth USD 8.3 billion. There will be significant additional investments in feeder roads and upgradations and with the company’s increasing focus on this segment, there is huge scope in terms of revenues. The order book of the company has been growing at a CAGR of 134 per cent in the period 2005 to 2009 while the revenues grew by 45 per cent and EBIDTA grew by 36 per cent during the same period. As in 2009 the order book stood at 3.59x of the year-end revenues.
The PAT margins have started picking up after a drop in 2008 and in 2009 the company posted a PAT margin of 20 per cent. Over Rs 200 crore has been added to in the past two years to support the tripling of the order book. However, there had been a sharp increase in the working capital cycle in 2009 owing to the launch of new projects and increase in WIP. This is meant to go down once the projects win delivery and the billing starts gaining momentum.
For six months ended December 2009, the company’s sales grew by 54 per cent at Rs 450.4 crore as compared to the previous year’s figure. Its EBIDTA grew by 79 per cent from Rs 56.75 crore to Rs 101.86 crore, mainly due to EBIDTA margins that grew by 324 basis points. This gave a boost to the net profit which spurted up by 87 per cent to Rs 25 crore as compared to the earlier year’s figures. At a CMP of Rs 244 the scrip is trading at 8.43x its trailing 12 months’ earnings. With a book value per share of Rs 191, and an EV/EBIDTA of 4.8x the scrip is fairly priced at its current levels.