Consolidated Construction Consortium (CCCL), a Chennai-based construction company is a pure play construction contractor in the realty and infrastructure segment and provides turn-key construction services primarily to real estate players. Its competence lies in executing real estate projects like office space & IT parks for some of its renowned clientele like Infosys, Ascendas, Bosch, HCL & ITC.
CCCL’s revenues can be broadly classified in to Commercial, Industrial, Residential, Building products and Infrastructure. For the year ended March 2008, the company derived over 90 per cent of its revenues from commercial (61.35 per cent) and industrial (29.24 per cent) segment respectively with almost 90 per cent of sales from the southern region of the country. Notably, the company does not have any projects on long-term Build-Operate-Transfer models.
Issue Details & Update
Price Band : Rs. 460 - 510
Issue Price : Rs. 510
Issue Size : Rs.1,887 million
Issue Open / Close Date : 18-09-2007 to 21-09-2007
Issue Listing Date : 15.10.2007
Lead Manager : Enam Securities Private. Ltd
Kotak Mahindra Capital Company Ltd
Spark Capital Advisors (I) Pvt. Ltd Listing Price : Rs.801
Current Market Price : Rs. 230
52 Week H/L : Rs. 685 / 105
Latest Market Cap : Rs. 8499 million
The issue was oversubscribed 81 times. The company raised Rs. 1,887 million and it proposed to finance the acquisition of construction infrastructure, investment in subsidiaries, expenditures towards skill and management development centre, repayment of loans and to meet the expenditure for general corporate purposes.
Promise vs Performance table: Amount in Rs Million.
Particulars | Proposed Exps | Actual Allocation (Post IPO issue) | Utilisation Status (Yearly) | | | | FY 2008 | FY 2009 | FY 2010 | Acquisition of constructions infrastructure | 1,374 | 1,374 | 420.5 | 834.2 | 122.5 | Investment in our subsidiaries | 68 | 68 | 36.2 | 31.2 | - | Expenditures towards our skill and management development centre | 49 | 49 | 3.8 | 44.8 | - | Repayment of Loans | NA | 118 | NA | NA | NA | General Corporate purposes | NA | 129 | NA | NA | NA | Issue related expenses | NA | 150 | NA | NA | NA | TOTAL Fund Raised / Proposed to be Utilised | 1,887 | 1,887 | NA | NA | NA | Aggregate Utilisation (incl. General Corp Exps) | | | 533.7 | 1496.1 | - | % Allocation | | | 28.28% | 79.28% | - | Balance - MF Investments / Investment in Scheduled Banks | | | 1353.3 | 390.9 | - |
Post IPO Progress Card:
The company utilized almost 80 per cent of its proceeds as per the proposed estimates in the RHP.
In June 2008, the company acquired 40 per cent equity stake in Innotech Construction LLC, Dubai. CCCL would earlier execute projects under a management contract with Innotech in GCC countries by leveraging the latter’s expertise in constructing of higher FSI buildings & towers.
In a joint venture with Herve Pomerleau International Inc. Canada, the company bagged the Chennai Airport project worth Rs. 12,120 million from Airports Authority of India (AAI) in October 2008. In addition, the company also secured a Cargo complex project at Chennai airport and allied services work at Tiruvananthapuram for Rs. 680 million and for Rs 410 million respectively.
As per the latest announcement, the company is gearing up to meet this demand through a separate infrastructure construction division.
At the time of its IPO, CCCL had proposed the development of a food processing SEZ for which it had received a formal approval from the government. It had also earmarked approximately 300 acres of land for the project. As per the latest announcement, its 100 per cent subsidiary CCCL Infrastructure has got the nod for promoting a food processing SEZ at Tuticorin and the project would come up on 522 acres. The company has already invested Rs. 90 million and an additional Rs. 500 million would be infused over a period of two-years. The company has appointed E&Y for implementing the SEZ project.
Latest Financials – Rs Million
Particulars | Q4 FY09 | FY 2009 (consolidated) | Net Sales | 4,776.4 | 18,413.1 | Other Income (Operating and Non Operating) | 35.7 | 94.2 | Total Income | 4,812.1 | 18,507.3 | Total Expenditure | 4,439.3 | 17,189.9 | PBIDT | 372.9 | 1,317.4 | Interest | 33.8 | 118.2 | PBDT | 339.0 | 1,199.2 | Depreciation | 24.3 | 89.5 | Tax | 109.2 | 381.8 | Profit After Tax | 205.5 | 728.0 | | | | PBIDTM(%) | 7.75% | 7.12% | PBDTM(%) | 7.05% | 6.48% | PATM(%) | 4.27% | 3.93% |
Note on Financials
On a consolidated basis, CCCL reported a drop in net profit at Rs. 728 million for the year ended March 31, 2009 against Rs. 889 million in the previous year despite rise in the total revenue to Rs. 18,507 million ( Rs 14,850 million ) for the period under review. The company attributed the fall in the net profits due to cancellation of few orders/contracts by the clients due to funding constraints.
As per the news reports, the order book as on March 31, 2009 stood at Rs. 33,228.50 million. Of this, infrastructure (43 per cent) and commercial (40 per cent) constituted the bulk followed by industrial (14 per cent) and residential projects. The company has also scheduled to execute the orders over a span of 17 months, anticipating higher growth.
SWOT
Key Positives
Unique business model - enables it to cover a broad spectrum from design conceptualization and completion. Hence reduced dependence on third party sub-contractors results into savings in terms of cost and time overruns. Moreover, CCCL’s alliance & project specific JVs to undertake larger scale infrastructure projects help the company to secure bigger contracts with higher expertise.
Significant domain expertise in commercial and industrial construction, especially in constructing IT parks, airport terminals, factories, malls, hotels, etc.. Being a pure integrated turn-key construction services provider, the company appears well diversified to be significantly impacted by slowdown in the various sectors. Moreover, strong relationships with clients which has helped the company to receive significant repeat orders also suggests company’s expertise in handling unique projects.
Experienced promoters/ management team.
Strong order book of over Rs. 33,000 million provides high revenue visibility.
Key Negatives
Construction business are working capital intensive thereby making it highly vulnerable to interest rate risk. Nevertheless, the interest rate is going down and its debt to equity position is satisfactory as compared to its peers. With IPO funds to the extent of Rs 391 million still unutilised, the company seems to be in a financially comfortable position to meet any eventuality of a liquidity crisis.
Delay in government funded or aided contracts, change in the government or governmental policies or practices can result into delay in project or payment process.
Business operations are concentrated heavily in Southern India viz Tamil Nadu and Karnataka.
Slowdown in industrial, commercial and infrastructure services may adversely impact the financial performance of the company as its exposure to IT as a vertical has lead to perceived demand pressure amidst IT slowdown.
theIPOguru.com Recommendation : BUY at Declines
The ongoing economic slowdown has adversely impacted the company execution growth over the past quarters and it is also facing payment delays on existing contracts, resulting in a stretched working capital cycle. However with several positives it can turn out to be a decent bet in the construction space for a long term investor.
|
