Buy Consolidated Co; target of Rs 107: PINC Research

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Buy Consolidated Co; target of Rs 107: PINC Research

PINC Research is bullish on Consolidated Construction Consortium and has recommended buy rating on the stock with a target of Rs 107 in its October 29, 2010 research report.

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PINC Research is bullish on Consolidated Construction Consortium and has recommended buy rating on the stock with a target of Rs 107 in its October 29, 2010 research report.

"During the quarter, a fatal accident caused stoppage of work in Chennai Airport for 3 weeks, resulting in loss of work to about Rs 500 million.Whereas overheads and idle wages continued to eat into operating margin. However, now the work has resumed and management expects to cover up the lost work in second half. The outstanding work in hand stands approximately at Rs 5 billion. Technical and design changes for the DMRC car parking project, which is a fixed contract has lead to cost over run of Rs 82 million. The company is working at recovering the loss through arbitration process, the full cost has been taken to books."

"In order to cover the lost work due to unprecedented rainfall, the company hired large equipments which cost dearer by Rs 27 million. Apart from this idling labor force and fixed overheads during the stoppage period resulted in lower margin at 7.8% in Q2FY11. Due to lower EBITDA margin in H1FY11 at 8% and the cost overrun we marginally tone down our margin for FY11 to 8.9% from 9.2%, consequently reducing our earnings to Rs 5.5 from Rs 5.7 for FY11. However we take this as a short-term phenomenon and continue to value the company on FY12 earning, which is unchanged at Rs 7.6. Current order book stands at Rs 44.9 billion, 2.3x FY10 revenue. The company has booked strong orders of Rs 21.3 billion in first half, which is inline with our expectation of Rs 42.5 billion for the whole FY11."

"Considering strong order inflow and expectation of ramp up of work in second half of the year, we continue with our BUY rating with target price of Rs 107. We have valued the company at 14x FY12 earning of Rs 7.6," says PINC Research report.

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