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Construction Sector Centrum 300810

Construction Sector Centrum 300810

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Published by manishkayal

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Categories:Types, Research
Published by: manishkayal on Apr 07, 2011
Copyright:Attribution Non-commercial


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Manish Kayal
manish.kayal@centrum.co.in91 22 4215 9313
30 Aug 2010
Construction Sector2
This page intentionally left blank 
Please refer to important disclosures/disclaimers in Appendix A
Sector View: Positive
Infrastructure ConstructionIVRCL Infra – BuyNCC– BuyHCC– BuyEra Infra Eng – BuyCCCL – BuyAhluwalia Contracts –Buy
Manish Kayal
manish.kayal@centrum.co.in+91 22 4215 9313
US$443bn Infra Opportunity Awaits
We initiate coverage on the construction sector with apositive long-term view due to its robust project pipeline,improving credit scenario and better executionenvironment. We expect increased order-book visibility,
as the 12
Five-Year Plan (2012-17) envisagesinfrastructure investment of US$1tn and a fast-growingeconomy boosts industrial capex. Risk factors includeland acquisition issues and unstable regulatory policies.We recommend Buy on all coverage companies: IVRCLInfra, NCC, HCC, Era Infra, CCCL and Ahluwalia Contracts(ACIL). ACIL is our Top Buy.
fastest-growing economy; opportunity estimatedat $443bn
12th Five-Year Plan targets infrastructure spend of US$1tn, presenting construction opportunity worth$443bn, as per our estimates. We expect significantactivity in power, road and ports.
Reviving investment sentiment is expected toincrease residential, commercial and industrialcapex (accounts for 46% of construction’s total pie).
Factors driving growth
– government initiatives:
Improved funding environment through steps takenby the government, banking authorities andregulatory agencies.
Improved regulatory environment with theadoption of the B.K. Chaturvedi report on the roadsector. These steps indicate the government’s intentto ensure good infrastructure facilities in India,which in turn, would boost construction growth.
Positive impact on operating environment andfinancials
: Funding and regulatory changes areexpected to lead to better operating environment interms of improved margins and financial position.Working capital turnover is also likely to improve.
Risk factors
: Land acquisition and unstable regulatorypolicies remain key risks. Other risks: rising raw materialprice and scarcity of skilled labour for complex projects.
Undervaluation not justified
We believe the adjustedEPC business’ current P/E of 9x-10x FY12E earnings(discount to Sensex P/E of 14x) is unwarranted.
To valuecoverage companies, we apply a range of 11x-14x: 12xto CCCL, 11x to ACIL, 13x to IVRCL, and 14x to Era Infra,HCC and NCC’s domestic business. We initiate coverageon the sector with a positive view. ACIL is our Top Buy onits better risk-reward profile.
Order-Book & Book-To-Bill* as on Q1FY11
204 188 154 34 33853. INEquityHCC INEquityNJCC INEquityERIE INEquityCCCL INEquityAHLU INEquity(Rsbn)-123456Order-Book (In Rs.Bn) Book-to-Bill
*Book-to-bill ratio calculated as OB/TTM Rev
Source: Companies, Centrum Research
FY09 Construction Sector Mix ($bn)
Industrial 42.6Infrastructure63.8Residential 5.9Commercial 5.9
Source: Companies, Centrum Research
FY09 Public/Private Construction Spend
30% 30%30%60%70%40%70%70%0%10%20%30%40%50%60%70%80%90%100%Residential Commercial Industrial Infrastructure
Private Public
Source: Companies, Centrum Research
Valuation Summary
M.Cap EPS (Rs) P/E (x)
RoE (%)
Company Rating RsmnUS$mnCMP(Rs)TargetPriceFair P/EMultipleUp/Down(%)
FY11E FY12E FY13
IVRCL Ltd Buy 42,174 916.8158 23013.04610.2 12.5 15.1 15.5 12.6 10.5
12.8 14.0 14.8
NCC Ltd Buy 39,617 861.2154 21513.03910.0 12.1 14.0 15.4 12.8 11.0
11.0 12.1 12.7 
HCC Ltd Buy 37,275 810.360 8814.0482.4 3.5 4.9 25.1 16.8 12.2
9.4 12.8 15.7 
Era Infra Buy 39,930 868.0220 28914.03114.4 19.2 24.4 15.3 11.4 9.0
17.7 19.7 20.5
CCCL Buy 15,706 341.485 10112.0196.9 8.4 10.4 12.3 10.1 8.1
19.8 20.2 20.9
Ahluwalia Cont. Buy 13,180 286.5210 27611.03118.2 24.8 31.3 11.5 8.5 6.7
37.5 36.5 33.4Price as on 27 August 2010; Source: Company, Centrum Research Estimates
Initiation 30August2010
Construction Sector

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