CCCL reported lower sales led by execution issue in key projects, though margins surprised us at 9.7%, PAT was marginally below expectation at Rs167mn (Rs176mn PINCe). Followed by the management apprehension towards execution, we lower our FY11 and FY12 estimates and reduce our target price to Rs62 per share. However, we maintain BUY recommendation betting on CCCL’s strong balance sheet, healthy OB inflow and quick ramp-up shown by the company in the Infrastructure segment where the current order mix stands at 50% of Order Book from 10% in FY08.

Execution of key projects slower than expected… Key projects like Chennai Airport reported lower execution with revenue accretion of ~ Rs1.5bn. Other crucial projects like Chennai Metro are yet to commence while ONGC corporate building & Hind Power projects did marginal execution during the quarter. These were mainly client related issues. We expect better execution in Chennai Airport in Q4FY11 as new design for cargo complex have been approved. We bring down our sales estimates for FY11 and FY12 by 1.3% and 8.2% respectively.

Revenue loss and cost overrun CCCL lost about Rs500mn-600mn in revenues during the quarter for Chennai airport, largely owing to pending of clearance & approval. For the 9MFY11 margins were impacted by 1% from additional hire charges and 0.5% due to idle staff cost and increment applicable from Jan 2010.

VALUATIONS & RECOMMENDATION We cut earnings estimates by 10.5% and 19% for FY11 and FY12 resp. led by lower execution and higher interest cost; similarly we reduce P/E from 14x to 12x and value CCCL at Rs62 per share. But we continue to maintain our ‘BUY’ recommendation, as we believe that execution will follow as macro environment improves and order inflow continues. CCCL has a better balance sheet and hence is capable of ramping up performance at the right time. The momentum of order wins in Infra segment from 10% in FY08 to current 50% talks about the management credentials and belief in the long-term value proposition.