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Q3 disappoints; CMP factors all –ves
Consolidated Construction Consortium’s (CCCL) Q3FY11
numbers were disappointing. Revenue at Rs5bn was 17%
below our estimate of Rs6bn. EBITDA and PAT also came
8% and 28% below estimates. However, EBITDA margin
at 9.7% was higher than our estimate of 8.8%. Orderbook
intake during Q3FY11 was Rs2.5bn (Q4FY11TD it is
Rs8.3bn). Current OB is at Rs52bn. Execution has been
ramped-up at the Chennai airport project worth Rs12bn
(expected to be completed by Dec 2011). At CMP of Rs54,
all negatives have been factored-in. However, valuation
of 9.9x FY12E P/E is on a higher side. We recommend
Ahluwalia Contracts (6.3x FY12E P/E) among small caps.
We have cut our FY12 earnings estimates by 27%, but
maintain Buy with a target price of Rs66 (21% upside).
Order-book: CCCL bagged orders worth Rs2.5bn in Q3
with additional Rs8.3bn in Q4TD. Management expects
Rs10bn worth of orders to come in remaining 4Q.
Current OB is Rs52bn.
EBITDA margin guidance raised: Management said
that 8.5%-9.5% margins would be maintained, whereas
4.5% PAT margin is the long-term target.
Estimates reduced sharply, Maintain Buy: We have
sharply lowered our FY11 and FY12 estimates
considering the performance in the past 2quarters and
outlook for the construction industry. We reduce
revenue estimate by 18% and PAT estimate by 27% for
FY12. We maintain Buy on valuations playing for 21%
upside on conservative assumption of growth (trading
at 10x FY12E P/E). We believe CCCL presents a decent
risk-reward. However, for better risk-reward, we prefer
Ahluwalia Contracts in the small caps.
Q3FY11 – Topline disappoints, Surprise on Operating Margins
CCCL’s Q3 revenue at Rs5bn was much below our expectation of Rs6bn and that of the street of
Rs5.5bn. Execution of various projects were slower than the company’s expectation. Surprisingly,
EBITDA margin was 9.7%, higher than our (and street expectation) of 8.8%. It should be noted that
CCCL’s margins are higher in H2 vs H1.
Net profit was impacted the most by higher provision for “JV’s share of the profit” for the Adyar River
Bridge project. We had expected the amount to be Rs22mn, but it was much higher at Rs55mn.
Depreciation came 21% below our expectation, while interest expenses and other income were 10%
above and 13% below expectations, respectively. PAT was Rs167mn vs our expectation of Rs232mn
and the street’s of Rs194mn.
Conference call – key takeaways
Guidance is Rs21bn-21.5bn for FY11 and Rs23.5bn-Rs24bn for FY12 standalone revenue. Target is
to maintain EBITDA margin in the range of 8.5%-9.5% and PAT at 4.5% long-term.
Order inflows worth Rs8.3bn were bagged in Jan 11 (OB as on date is Rs52bn, 2.3x FY11) and
negotiations are ongoing for orders worth Rs10bn which is expected to be part of the order-book
by Q4FY11. It expects order-backlog position by FY11-end to be Rs53bn. Going forward CCCL
expects power & hydrocarbon segments to constitute a decent portion of order-book.
Chennai Airport Update – CCCL has completed the up-gradation work of Chennai Airport to the
extent of Rs5.4bn (Rs2.7bn in Q3FY11) out of total Rs12bn project size. Remaining Rs6bn worth of
works is expected to get completed by Dec’11. After execution issues in Q2FY11 extending to
initial couple of months in Q3FY11, the project execution is in full swing and the domestic
terminal is expected to be complete by October’11. Also, the Adyar River Bridge has been
completed to the extent of Rs1.9bn till date (Rs1.4bn in Q3FY11).
Capex for the company will be higher in FY12 on account of investments required for Oil & Gas
segment entry. The company is also trying to get an international player for segment exposure
(currently working on hydrocarbon project of client Nagarjuna Oil).
Solar power venture – CCCL entered in to an agreement with NTPC Vidyut Vyapar Nigam Ltd for
power from 5MW solar power installations to be set up in Tuticorin area (land already with CCCL
Infrastructure Ltd). The execution of the project is expected to take around 11months and be
completed by Jan 12. The cost of the project is Rs500mn with debt component of Rs450mn.
Financial closure is expected soon with the company getting in-principle sanctions. IRR is
expected to be 15% on the project. Tariff decided is Rs13/Kw.
Downward revision in revenue growth and margin estimates
We have adjusted our numbers and sharply reduced our FY11 and FY12 estimates. We have lowered
consolidated revenue estimate for FY11 by 10% and for FY12 by 18%. We believe the revised
estimates are on the lower side and have upside risks. We have increased our EBITDA margin
estimates by 30bp for FY11 and 70bp for FY12 considering the comments from the management.
Interest expenses are revised upwards by 46% and 41%, respectively, on increasing leverage and
higher cost of debt. Net impact of all the above changes lowers net profit assumption by 27% for
FY12 at Rs1bn.
We have reduced our standalone revenue estimate for Q4FY11 by 19% taking in to consideration
the management’s revised guidance. However, we believe that due to inconsistency in
management remarks regarding EBITDA margins, 10.8% is a reasonable assumption for Q4FY11 vs
our earlier estimate of 9.8%. Note that Q4 is usually a better quarter for CCCL in terms of operating
margins due to leverage with Q4 revenue contributing the major share.
Valuation
The stock price has corrected by 30% in the past 3 months. We believe at the CMP, the stock
presents a safe bet considering estimates which are fairly conservative. CCCL is also one of the few
stocks which deliver better ROE vs frontline construction companies like IVRCL Infra, NJCC, HCC, etc.
We value CCCL at Rs66, presenting an upside of 21% from the current level. However, we prefer
Ahluwalia Contracts (trading at FY12 P/E of 6.3X) for better risk-reward compared to CCCL (trading
at 9.9x FY12E P/E) in the small-cap construction segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q3 disappoints; CMP factors all –ves
Consolidated Construction Consortium’s (CCCL) Q3FY11
numbers were disappointing. Revenue at Rs5bn was 17%
below our estimate of Rs6bn. EBITDA and PAT also came
8% and 28% below estimates. However, EBITDA margin
at 9.7% was higher than our estimate of 8.8%. Orderbook
intake during Q3FY11 was Rs2.5bn (Q4FY11TD it is
Rs8.3bn). Current OB is at Rs52bn. Execution has been
ramped-up at the Chennai airport project worth Rs12bn
(expected to be completed by Dec 2011). At CMP of Rs54,
all negatives have been factored-in. However, valuation
of 9.9x FY12E P/E is on a higher side. We recommend
Ahluwalia Contracts (6.3x FY12E P/E) among small caps.
We have cut our FY12 earnings estimates by 27%, but
maintain Buy with a target price of Rs66 (21% upside).
Order-book: CCCL bagged orders worth Rs2.5bn in Q3
with additional Rs8.3bn in Q4TD. Management expects
Rs10bn worth of orders to come in remaining 4Q.
Current OB is Rs52bn.
EBITDA margin guidance raised: Management said
that 8.5%-9.5% margins would be maintained, whereas
4.5% PAT margin is the long-term target.
Estimates reduced sharply, Maintain Buy: We have
sharply lowered our FY11 and FY12 estimates
considering the performance in the past 2quarters and
outlook for the construction industry. We reduce
revenue estimate by 18% and PAT estimate by 27% for
FY12. We maintain Buy on valuations playing for 21%
upside on conservative assumption of growth (trading
at 10x FY12E P/E). We believe CCCL presents a decent
risk-reward. However, for better risk-reward, we prefer
Ahluwalia Contracts in the small caps.
Q3FY11 – Topline disappoints, Surprise on Operating Margins
CCCL’s Q3 revenue at Rs5bn was much below our expectation of Rs6bn and that of the street of
Rs5.5bn. Execution of various projects were slower than the company’s expectation. Surprisingly,
EBITDA margin was 9.7%, higher than our (and street expectation) of 8.8%. It should be noted that
CCCL’s margins are higher in H2 vs H1.
Net profit was impacted the most by higher provision for “JV’s share of the profit” for the Adyar River
Bridge project. We had expected the amount to be Rs22mn, but it was much higher at Rs55mn.
Depreciation came 21% below our expectation, while interest expenses and other income were 10%
above and 13% below expectations, respectively. PAT was Rs167mn vs our expectation of Rs232mn
and the street’s of Rs194mn.
Conference call – key takeaways
Guidance is Rs21bn-21.5bn for FY11 and Rs23.5bn-Rs24bn for FY12 standalone revenue. Target is
to maintain EBITDA margin in the range of 8.5%-9.5% and PAT at 4.5% long-term.
Order inflows worth Rs8.3bn were bagged in Jan 11 (OB as on date is Rs52bn, 2.3x FY11) and
negotiations are ongoing for orders worth Rs10bn which is expected to be part of the order-book
by Q4FY11. It expects order-backlog position by FY11-end to be Rs53bn. Going forward CCCL
expects power & hydrocarbon segments to constitute a decent portion of order-book.
Chennai Airport Update – CCCL has completed the up-gradation work of Chennai Airport to the
extent of Rs5.4bn (Rs2.7bn in Q3FY11) out of total Rs12bn project size. Remaining Rs6bn worth of
works is expected to get completed by Dec’11. After execution issues in Q2FY11 extending to
initial couple of months in Q3FY11, the project execution is in full swing and the domestic
terminal is expected to be complete by October’11. Also, the Adyar River Bridge has been
completed to the extent of Rs1.9bn till date (Rs1.4bn in Q3FY11).
Capex for the company will be higher in FY12 on account of investments required for Oil & Gas
segment entry. The company is also trying to get an international player for segment exposure
(currently working on hydrocarbon project of client Nagarjuna Oil).
Solar power venture – CCCL entered in to an agreement with NTPC Vidyut Vyapar Nigam Ltd for
power from 5MW solar power installations to be set up in Tuticorin area (land already with CCCL
Infrastructure Ltd). The execution of the project is expected to take around 11months and be
completed by Jan 12. The cost of the project is Rs500mn with debt component of Rs450mn.
Financial closure is expected soon with the company getting in-principle sanctions. IRR is
expected to be 15% on the project. Tariff decided is Rs13/Kw.
Downward revision in revenue growth and margin estimates
We have adjusted our numbers and sharply reduced our FY11 and FY12 estimates. We have lowered
consolidated revenue estimate for FY11 by 10% and for FY12 by 18%. We believe the revised
estimates are on the lower side and have upside risks. We have increased our EBITDA margin
estimates by 30bp for FY11 and 70bp for FY12 considering the comments from the management.
Interest expenses are revised upwards by 46% and 41%, respectively, on increasing leverage and
higher cost of debt. Net impact of all the above changes lowers net profit assumption by 27% for
FY12 at Rs1bn.
We have reduced our standalone revenue estimate for Q4FY11 by 19% taking in to consideration
the management’s revised guidance. However, we believe that due to inconsistency in
management remarks regarding EBITDA margins, 10.8% is a reasonable assumption for Q4FY11 vs
our earlier estimate of 9.8%. Note that Q4 is usually a better quarter for CCCL in terms of operating
margins due to leverage with Q4 revenue contributing the major share.
Valuation
The stock price has corrected by 30% in the past 3 months. We believe at the CMP, the stock
presents a safe bet considering estimates which are fairly conservative. CCCL is also one of the few
stocks which deliver better ROE vs frontline construction companies like IVRCL Infra, NJCC, HCC, etc.
We value CCCL at Rs66, presenting an upside of 21% from the current level. However, we prefer
Ahluwalia Contracts (trading at FY12 P/E of 6.3X) for better risk-reward compared to CCCL (trading
at 9.9x FY12E P/E) in the small-cap construction segment.
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