52-WEEK FLOP: C&C CONSTRUCTIONS :: Business Line

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A concentration on road projects, where the flow of fresh bids awarded dried up and sector-wide troubles of delayed execution on prolonged monsoons weighed on construction player C&C Constructions. After five years of continuous strong growth, the company faltered in the December 2010 and March 2011 quarters. The company's stock has had a punishing run for the past year as a result.

Trouble for C&C brewed on quite a few fronts. It suffered a revenue shortfall of Rs 75 crore in the December 2010 quarter due to design issues in its Mohali development project. Unseasonal rains halted construction in Bihar for a time, though it has since picked up. Hiccups in railway projects hampered progress; this segment and airports continue to be slow moving. C&C also battled labour problems for a short while, which resulted in increased manpower costs.

Consolidated revenues for the nine months ended March posted tepid growth of 2.6 per cent on a year-on-year basis while profits tanked 42.2 per cent on high interest costs. Therefore, while operating margins held at 20 per cent for the period, net margins dipped to two per cent from four per cent in FY10.

The company, however, still has an edge over others in its ability to execute complex projects in tough terrain. It has also effected a successful diversification away from road projects into a variety of sectors such as urban infrastructure and real estate.

Shareholding patterns:: Business Line,

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With construction stocks, along with their infrastructure and real-estate contemporaries, falling out of favour with the markets, have institutional investors — domestic and foreign — also shunned the stocks?

Domestic institutional investors (DIIs) remained invested, reducing holdings in a little under half the stocks in the construction universe over the past two years. Foreign institutional investors (FIIs) on the other hand, have pared holdings in more than half the stocks, even exiting a few.

We considered the quarterly shareholding patterns over the past two years, for 25 of the bigger construction companies to gauge holding patterns.

Increases and decreases

Between March '09 and '10, DIIs increased stakes in 11 of the 25 companies that make up the construction universe. Stocks such as Simplex Infra, CCCL and Ahluwalia Contracts have seen the maximum holding increases by DIIs. Companies have also not seen DIIs completely liquidating their holdings and exiting the stock.

The disfavour for construction stocks appears to have affected FIIs, with 60 per cent of the stocks seeing reduction in FII holdings between March '09 and December ‘10. FIIs had also exited three stocks by end-December '10 — Atlanta, Tantia Constructions and KNR Constructions — where they had stakes of over 5 per cent.

Favoured stocks

Even as FIIs consistently shed stakes, they did push up stakes in a select few. Stocks that found favour, where both DIIs and FIIs hiked holdings, include C&C Constructions, CCCL, Supreme Infrastructure and Marg Constructions.

C&C Constructions: Buy:: Business Line

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C&C Constructions: Buy

Bhavana Acharya

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.

C & C Construction : 2011 Top Picks: Anagram

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C & C Construction


C & C Construction is a Gurgaon based infrastructure developer
providing engineering, procurement and construction services in
India and Afghanistan. While historically the company has focused
on projects in roads and highways, it has lately diversified into
power transmission, water & sanitation and commercial buildings.
In India the company mainly works for various state and central
authorities like NHAI, PWD Punjab, AAI etc.