Edelweiss Research - December, 23 2010- Annual Report Analysis - C&C Constructions

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Re-classification of JV as integral; led to higher profitability
􀂄 During FY10, C&C Constructions (C&C) reclassified its JV operations in Afghanistan from
non-integral to integral. This led to PAT for the year being higher by INR 68.6 mn (11%
of PAT).

WIP forms significant portion of working capital; includes unrealised profits
􀂄 WIP is valued on net realisable value basis (NRV); hence, the carrying value includes
the unrealised profit. WIP increased sharply by 3.4x, from INR 2.1 bn in FY09 to INR 7.2
bn in FY10.

􀂄 C&C follows percentage of completion method for recognising the contract revenues.
However, the company does not specify any threshold stage for commencement of
recognition of revenues.

Revenue and EBIDTA growth robust; operating cash flow subdued on increase in WC
􀂄 C&C’s FY10 revenue jumped 56.6% to INR 11.6 bn (FY09 INR 7.4 bn) and EBIDTA
catapulted 75% to INR 2.1 bn (FY09 INR 1.2 bn).

􀂄 Despite reported FY10 PBT of INR 1.0 bn (FY09: INR 0.5 bn), cash from operating
activity (post interest) remained subdued at INR (0.6) bn [FY09: INR (13.0) bn], mainly
due to higher working capital requirement.

􀂄 Cash conversion cycle deteriorated from 181 days in FY09 to 215 days in FY10,
primarily owing to rise in inventory days from 177 in FY09 to 251 in FY10. It was,
however, partially compensated by decrease in receivable days from 109 in FY09 to 69
in FY10.

Capex augmented by mix of debt and equity; D/E improves on new issuances
􀂄 C&C’s net block increased from INR 4.7 bn in FY09 to INR 6.3 bn in FY10. This was
primarily on account of pursuing BOT projects represented by CWIP that increased from
INR 1.5 bn in FY09 to INR 2.6 bn in FY10.

􀂄 During FY10, C&C raised INR 0.8 bn through QIP and INR 0.5 bn through preferential
allotment of equity shares to promoter group on conversion of warrants.

􀂄 Loan book increased from INR 6.7 bn in FY09 to INR 8.3 bn in FY10. D/E improved
marginally, from 1.9x in FY09 to 1.6x in FY10.

􀂄 Average borrowing cost charged to P&L (excl. interest capitalised) was 10.3% in FY10.
The company capitalises the interest cost to carrying cost of CWIP/inventory. Details on
interest capitalised has not been disclosed separately.

Revenue mix to undergo a rejig as company ventures into new businesses
􀂄 C&C intends to expand its presence across infrastructure segments; besides developing
roads, it is also undertaking projects for buildings, railways and water & sewerage
projects.

􀂄 The company’s order book, as at FY10 end, stood at INR 26.1 bn (FY09 INR 34.2 bn); of
this, INR 13.8 bn (FY09 22.5 bn) comprises roads and the balance other new ventures.