C&C Constructions, an infrastructure project development company, is raising Rs 115-124 crore through a public issue. The company builds roads, bridges, flyovers and airport runways.

The issue proceeds will primarily go into special purpose vehicles (SPVs) or joint venture (JV) investments for BOT (build, operate and transfer) and BOOT (build, own, operate and transfer) projects, capital equipment investment and augmenting working capital capacities.

Given that net worth forms one of the criteria to bid under NHAI guidelines, the public issue appears part of C&C's efforts to bolster its chances of winning future bids, especially in the BOT/BOOT arena.

The company's focus in this segment is also indicated by the company's proposal to use Rs 85 crore for equity investments in SPVs and JVs over FY07 and FY08. 

Although C&C is still new in the arena of BOT/BOOT projects, it has a proven track record in winning NHAI contracts. It is in the process of executing with its JV partner BSCPL (B Seenaiah and Co) three major projects on the NH-57 East-West corridor stretch having a total contract value of around Rs 521 crore.

Recently the company's JV BSC-C&C won a BOT road construction project under NHDP-III for the Kurali-Kiratpur section.

Over 70 per cent of its contract revenues in 2006 came in through JVs, primarily with BSCPL. Though its standalone bid capacity has increased from Rs 230 crore an order in 2002 to Rs 447.3 crore on 2006; there are limitations for its ability to independently bid and win BOT projects.

Moreover as an analyst adds, "Given that public-private partnership based BOT projects are far more capital intensive, smaller players like C&C may find it difficult to bid for many of these."

As regards financials, Net profit has risen an uninspiring 4.6 per cent CAGR in FY05 and FY06. This could be partly explained by the spike in interest and depreciation costs in FY06 by 91 per cent and 66 per cent respectively. However, the most compelling reason to invest in the IPO is, however, its strong profit margins.

Operating profit margins are around 24 per cent, which is a significant premium to its peers, which hover around 11 to 18 per cent. This is despite the fact that road projects have lower average industry margins at around 10 to 11 per cent in the same.

Looking ahead, the strong margins look sustainable as the company ventures into urban infrastructure projects. The price band of Rs 270 to 291 appears reasonable.

Assuming a 30 per cent CAGR in net profits the P/E ratio's work out to be  9.3 to 10 times estinated FY08 earnings at the higher and lower band respectively. This seems reasonable given peer valuations at 8.6-12.7 times FY08 estimated earnings.

• Issue Opened: February 5, 2007
• Issue Closes: February 9, 2007