Founded by four former Larsen & Toubro (L&T) professionals, Consolidated Construction Consortium (CCC) is a Chennai-based turnkey construction services provider of integrated turnkey construction in the industrial, commercial, infrastructure and residential sectors of the construction industry.
CCC has executed 334 projects comprising of 104 industrial, 172 commercial, 14 infrastructure, and 44 residential projects across 14 states and Union territories in India. The built-up area of the projects aggregates approximately 19 million square feet (sq ft) comprise 3.84 million sq ft in the industrial sector, 12.68 million sq ft in the commercial sector, and 2.48 million sq ft in the residential sector. The projects include factories, residential and commercial buildings, hospitals, hotels, power plants and structures in the infrastructure sector such as water tanks, water supply schemes and bridges.
The private and public sector clients of CCC include Infosys Technologies, Ascendas IT Park (Chennai), Khivraj Technology Park, Manipal University, Airport Authority of India, and Hi-Tech Carbon (a unit of Aditya Birla Nuvo).
The IPO of CCC is to fund acquisition of construction infrastructure, investment in subsidiaries, expenditure on skill and management development centres and repayment of loans. The issue will open on 18 September and will close on 21 September. The issue has been graded by ICRA as IPO Grade 3 indicating average fundamentals.
Strengths
- End July 2007, the pending order book stood at Rs 2049.57 crore. This is about 2.4 times reported FY 2007 revenue. The execution period for the order book is 12-15 months. Since July 2007, received 10 more orders aggregating a contract value of Rs 182.1 crore. Of the 14 top contracts aggregating Rs 1291.5 crore for which the expected date of completion has been given, about five contracts aggregating about Rs 389 crore are scheduled to be completed in the year ending March 2008 (FY 2008).
- Of the pending order book end July 2007, only 15.49% of the orders were fixed-price contracts. Thus, the margin is to a great extent cushioned against variations in input costs.
- More than 95% of the orders have been completed on time. Of the total order inflow in FY 2007, about 50% of the orders by value were by previous clients, indicating customer satisfaction.
- A subsidiary Noble Consolidated was incorporated in May 2007 for carrying out glazing and aluminium fabrication services. Ideally this business has a higher margin and accounts for about 25-28% of the total project work.
- In the recent past, many real-estate companies have tapped the capital market to fund the development of their land bank. This includes south-based players and some players with land bank higher than the cumulative development in the past. Thus good scope for outsourcing of the construction exits. Has construction capabilities of three million sq ft per month.
Weaknesses
- About 92.5% of the pending order book end July 2007 and 92.2% of FY 2007 revenue are from south. Besides, about 38% of FY 2007 revenue was from the IT/IT enabled services (ITES) sector. Thus, a slowdown in construction activities is south or in the IT/ITES sector could have an adverse impact.
- Does not own its trademark. The use of the trademark and logo has been licensed by Samruddhi Holdings, a promoter group entity. Has to pay 4% of audited profit before tax (PBT) at the end of every year subjected to a maximum of Rs 2 crore to Samruddhi Holdings as a consideration for the trademark.
Valuation
Between FY 2004 – FY 2007, net profit has shot up from Rs 4.12 crore to Rs 47.68 crore. The improvement in financials has been much sharper in the last two years due to increase in construction activity in south resulting into improvement in volumes and change in revenue mix. The share of low margin residential projects has declined in total revenue from 18.26% to 3.21%, while high-margin industrial projects have increased from 19.25% to 33.48% in the same period.
FY 2007 consolidated EPS on post-issue equity works out to Rs 12.9. At the offer price band of Rs 460-Rs 510, the P/E range is 35.7-39.5, respectively. The nearest comparable listed company is B. L. Kashyap & Sons, trading at a P/E 34.2 times its FY 2007 consolidated earning.