Indian Stock Market News and Analysis

IPO Review:Consolidated Construction issue looks attractive

>Chennai-based Consolidated Construction Consortium (CCCL), engaged in construction services, is all set to tap the capital market via the initial public offer  (IPO) route to mop up maximum of Rs 1,887 million. It plans to float 3.7 million shares and has fixed the price band of Rs 460 to Rs 510 a share, of face value of Rs 10.
The issue opens on  September 18, and will close on September 21.

CCCL has appointed Enam Securities and Kotak Mahindra Capital as lead managers to the issue. The issue will constitute 10.01% of the fully diluted post issue paid-up capital of the company.
ICRA assigned IPO Grade 3 to the public issue of the company, indicating average fundamentals.

Company profile:
Incorporated in 1997, CCCL is a provider of integrated turn-key construction services to the industrial, commer cial, infrastructure and residential sectors of the construction industry. It holds experience of executing 334 projects (comprising of 104 industrial projects, 172 commercial projects, 14 infrastructure projects, and 44 residential projects) across 14 states and union territories in India. Presently, the company is executing 146 projects across various states in India, which involves the construction of 4.57 million sq ft of industrial space, 17.96 million sq ft of commercial space, and 0.55 million sq ft of residential space.
As of Jul 31, 2007, the total value of order book is Rs 20,495.68 million.

Objects of the issue:
CCCL intends to deploy the issue proceeds to acquire construction infrastructure, investment in its subsidiaries, set up of skill and management development centre, repayment of loans, and fund expenditures for general corporate purposes.

Financial performance:
CCCL delivered first-rate financial performance during fiscal 2007. The healthy growth in revenues coupled with improved operating margin, helped the company to register a 1.51 times growth in earnings (consolidated) to Rs 476.77 million in fiscal 2007, as against Rs 189.86 million in fiscal 2006. It reported substantial rise of 1.04 times in total revenues (consolidated) to Rs 8,683.71 million in fiscal 2007, compared with Rs 4,264.54 million in fiscal 2006. The operating margin improved by 42 basis points to 8.65% during fiscal 2007, as against 8.23% in fiscal 2006.

Valuation:
Shares of CCCL are available at price to earnings (P/E) multiple of 11.67x at the floor price and 12.94x at the cap price. On the other hand, its peers, BL Kashyap and Sons, and JMC Projects (I) are tr ading at P/E multiple of about 35x and 37x respectively. While average P/E multiple of the industry is 27.3x. On the basis of price to book value (P/BV) multiple, the shares are available in the range of 3.29x at floor price to 3.65x at cap price.

Among the other qualitative factor is CCCL`s long track record in successful execution of construction projects within the time limit and stipulated quality parameters. The strong order book position of CCCL, together with buoyant outlook of the construction sector, is expected to boost growth in earnings and revenues in the coming years. Considering all these factors, the public issue of CCCL seems to be under-priced with potential to provide better listing gains, subject to favourable market conditions.