Multi Bagger = C&C Constructions Ltd ~ Investing In Value And Multibagger Stocks

Friday, June 13, 2008

Multi Bagger = C&C Constructions Ltd

Multi Bagger: C&C Constructions Ltd Recommended Price Rs 183.95
K.R Choksey Picks Report Dated: June 09, 2008

C&C Constructions Ltd (C&C) is an infrastructure project development company providing engineering, procurement and construction (EPC) services for infrastructure projects in India and abroad (Afghanistan). Their project expertise is primarily in transportation engineering projects including roads, bridges flyovers and airport runways especially in inhospitable environments. We Initiate coverage on C&C with a BUY recommendation based on SOTP valuations giving a 12 months price target of Rs 276, an upside of around 46% from the current levels.

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Investment Rationale:
Robust Order Book:
C&C has a robust order book of Rs 1,668 crore (5.05x FY2007 and 3.87x TTM net sales) which has swollen by about 58.7% since FY2007. Road segment constitutes approximately 96% of the total order backlog.

Strong operating margins compared to peers:
C&C enjoys operating margins in the range 18-20%, inspite of 96% of the order backlog in road segment. The high margin is attributable to operations in areas which has geographical and political constraints. Operations from Afghanistan fetch margins in the range of 22-25%. We believe C&C is well placed to enjoy higher operating margins due to expertise in executing these projects.

Expertise in executing projects in inhospitable conditions:
C&C have been successful in executing projects in difficult operating terrains and adverse weather conditions which helps them in commanding higher operating margins. In addition unavailability of key resources like machinery, material and personnel along with security challenges also poses execution risk for the company.

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Impressive financial performance:
C&C reported revenue CAGR of 38.6% from FY2005 to FY2007. On operating margin front also, it enjoyed industry highest margins of 29.7% in FY2006 and 23.4% in FY2007. The company plans to diversify its areas of operations into Urban Infra, Irrigation and Power Transmission business with approximately 30% contribution by FY2010. We believe operating margin to take marginal hit, however will continue to enjoy margins above 17% going forward.

Foray into BOT space:
C&C has recently won BOT project from Kurali to Kiratpur on NH-21. We believe this project to be value accretive on the basis of IRR and is expected to contribute Rs 42 to the target price.

Valuations & Financials:
At the CMP of Rs 183.95, C&C is trading at a trailing P/E of around 8.2x and at a forward P/E of around 7.46x FY08E EPS and 5.63x FY10E EPS.

Particulars	FY2007	FY2008E	FY2009E
Net Sales	330.47	573.3	789.5
Growth (%)	0.5605	0.735	0.377
EBITDA	71.6	99.4	137.6
Growth (%)	0.344	0.388	0.384
Net Profit	33.2	46.3	61.4
Growth (%)	0.073	0.396	0.326
EPS (Rs.)	20.57	25.36	33.61
EBIDTM(%)	0.217	0.173	0.174
NPM (%)	0.1	0.081	0.078
P/E (x)	9.2	7.46	5.63