Stock Market Result Update on Consolidated Construction Consortium for 2QFY2012

Stock Market Result Update on Consolidated Construction Consortium for 2QFY2012 with a Reduce recommendation and a Target Price of `17 (12 months).

For CCCL the run of dismal performances continue. Though the company’s performance on the revenue front was higher than our expectations; however, it was shocking, to say the least, at the earnings front, due to a substantial dip in EBITDAM and higher than anticipated interest cost. We are revising our estimates further downwards for FY2012 and FY2013 and are also assigning lower target PE multiple (7x from earlier 8x) to factor in the poor performance during the quarter, persistent weakness in business environment and expected poor performance in second half of the fiscal. Hence, we downgrade the stock to Reduce from Neutral with a Target Price of `17.

EBITDAM take a plunge + high interest cost àEarnings in red: For 2QFY2012, CCCL’s top line grew by 9.5% yoy to `535.8cr (`489.5cr), against our estimate of `465.0cr. On the EBITDAM front, the company posted abysmal margin of 1.4% (7.8%), registering a decline of 640bp yoy against our expectation of 261bp. On a sequential basis as well, CCCL’s margin witnessed a 340bp decline. The decline in margin can be attributed to commodity price pressures and increased employee and labor costs. Therefore, on the bottom-line front, the company reported loss of `18.7cr in 2QFY2012 vs. profit of `13.7cr in 2QFY2011, against our expectation of `1.4cr profit, mainly on account of lower margin and higher interest cost (`17.2cr, a jump of 42.1%/11.3% yoy/qoq).