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Research
Consolidated Construction Consortium - Conference call update - PINC Research
Posted On : 2010-11-13 22:40:16( TIMEZONE : IST )
Very Weak Guidance – Stock can correct in the near term
CCCL in its con-call has provided a very weak guidance for H2FY11, by lowering its revenue and EBIDTA margin guidance. The management echoed a modest 15% sales guidance for FY11E with an EBITDA margin range of 7.9% to 8.2%.
We fail to understand management's low EBITDA margin guidance for H2FY11
For H1FY11, CCCL has reported a 16% sales growth and EBITDA margin of 8%, based on our revised top-line estimates CCCL will have to do a 21% sales growth with EBITDA margin of 8.8%, which is still higher than the management guidance. We understand that there has been some cost overrun expense in Q2FY11 comprising of Rs82mn (DMRC car parking project) plus some Rs27mn to extra machining cost, which are not likely to accrue going forward, still management is targeting a best case EBITDA margin of 8.2%, which puts us to question of more negative surprises in H2FY11. Also margins were impacted by unusual rains and idle overhead cost whereas in Q3 & Q4 typically such issues will be off.
At present, we forecast a 17% consolidated sales growth for FY11 from earlier 23.5%. Overall our consolidated profit estimates have changed by 13% for FY11 and 15% for FY12 at the net level.
VALUATIONS & RECOMMENDATION
Based on our revised FY11 numbers CCCL is trading at 16.1x, which we believe is on the higher side and hence there is likelihood of further correction. But, we believe this to be a short-term phenomenon as the key parameter to look ahead is order inflow which for H1FY11 has increased by 65% at Rs22.5bn and we forecast OB to end at Rs42.4bn in FY11. The stock has already corrected by ~9.7% in the last one month, but remains flat since results. CCCL's current OB stands at Rs44.9bn (2.3x FY10 sales). CCCL has bid for Rs97bn worth of projects and enjoy a success rate of 14% - 18%. Also on FY12 basis the valuations are comfortable at P/E of 11.9x. We lower our target price to Rs91 (from Rs107) at 14x FY12E and maintain our 'BUY' recommendation.
