Hindustan Construction Company shares overview construction & contracting civil HCC

Hindustan Construction Company (HCC) (updated - 11 Feb 2010)
As flow of new orders in the road segment gathers pace, prospects of construction companies are likely to improve, say analysts. Yesterday, Hindustan Construction Company (HCC) announced an order worth Rs 2,860 crore from National Highway Authority of India (NHAI) to develop three contiguous road sections of 256 km on NH-34 (in West Bengal) on a design, build, finance, operate and transfer basis.

Companies have been scouting for build-operatetransfer (BOT) projects as they offer a large revenue source (arising from construction work initially) and consistent collections (in the form of toll) over several years. HCC reported an order book of Rs 15,700 crore for the December 2009 quarter, up 29 per cent year-on-year.

HCC’s order book now stands at Rs 18,500 crore, which will provide good revenues for the next three-four years. Importantly, the company now has six BoT projects worth of Rs 5,500 crore, which should help increase the share of revenue from the transport segment, currently at 28 per cent.

Meanwhile, analysts are not happy with the 10.2 per cent revenue growth in the December 2009 quarter due to slow execution, mainly in Andhra Pradesh, which accounts for about 25 per cent of the company’s order book.

HCC’s net profit declined 36.3 per cent as it a booked aloss of Rs 13.49 crore, arising from its Nathpa Jhakhri joint venture. Analysts, thus, expect a marginal 12-13 per cent revenue growth and flat growth in net profit in 2009-10. However, 2010-11 is expected to be better with growth in revenue and net profit pegged at 25 per cent and 48 per cent, respectively.

This is primarily on the back of a strong order book, an expected improvement in margins and a decline in interest costs. HCC’s stock closed 1.5 per cent higher at Rs 134.15 even as the Sensex fell.

Hindustan Construction Company (updated - 25 Aug 2010)
The stock of Hindustan Construction Company (HCC) has fallen almost 10 per cent over the past week, even after news of its foray into airport building. The concerns stem from the recent environment-related news about its Lavasa project.

HCC’s wholly-owned subsidiary, HCC Infrastructure (HCC Infra), is evaluating three smaller domestic airports, and planning to move abroad after gaining experience (with the help of recently acquired Karl Steiner). While the opportunity in the domestic airport space is huge, with estimated investments of about $9 billion till 201314, around $7 billion is expected to come from private players under the public-private partnership model.

However, the presence of existing players like GMR Infrastructure and GVK Power and Infrastructure, and competition from new players like Reliance Infrastructure and IRB Infrastructure, may not allow HCC to corner a big share of this opportunity. Moreover, HCC, unlike its rich experience in roads and power, is a new player in the field.

On the flip side, India’s first-of-its kind hill station, Lavasa (to be spread across 25,000 acres), has come under the environment ministry’s scanner for violating norms, which could delay its implementation. Lavasa will be built in four phases, finishing in 2021. The first phase will comprise three towns covering 28 million square feet and will be completed by 2011-12. HCC Infra’s financial performance has been good so far. Net profit rose 87 per cent year-on-year to `49 crore in the June quarter (double HCC’s standalone net profit).

Analysts ascribe an average value of `75 to HCC based on the sum-of-parts valuation, of which, Lavasa contributes `23. HCC, which holds 65 per cent in Lavasa Corporation, intends to tap the primary market. It plans to raise roughly `2,000 crore by diluting 10 per cent, which translates into a value of `20,000 crore.

This will unlock huge value for HCC shareholders, as its own market cap is just onefifth at `4,000 crore. Analysts say the development on this front (project execution and fund raising) needs to be watched and will be a key trigger for the stock.
source - business standard

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Hindustan Construction Company (updated - 11 Nov 2010)
Hindustan Construction Company’s (HCC’s) revenues (excluding from joint ventures) grew a moderate 13.3 per cent to `885 crore in the September quarter due to longgestation hydro power and transport projects. Good monsoon and higher share of slow-moving government projects (73 per cent of backlog) also hit the performance.

The operating profit margin rose 161 basis points to 12.9 per cent due to cost control and high-margin hydro projects. However, interest costs as a percentage to sales surged 117 basis points to 7.6 per cent – the highest in the construction sector and in the last 10 quarters – due to introduction of base rates, rising interest rates and a `3,300 crore increase in the net working capital. Stable depreciation and taxation costs, coupled with doubling of other income to `6.1 crore, helped net profit margin rise 67 basis points to 1.4 per cent.

Going ahead, revenue growth is expected to be robust on the back of a pick-up in execution of new large projects, including road build-operate-transfer (BOT) ones. Projects under various subsidiaries, such as HCC Infrastructure and HCC Real Estate (construction work on 247 Park Phase-II to start by March 2011, approvals for slum rehabilitation and `2,000-crore primary offering by Lavasa) are also progressing well.

However, the impact of high interest costs on profitability is the biggest risk, given a leveraged balance sheet (net debt-to-equity of 1.9 times), due to its presence in capital-guzzling segments like BOT, real estate and hydro power. The falling share of hydro power and water solutions in the total order book over the past several quarters, compensated partly by the transportation sector, is also aworry. Further, concerns about the company’s exposure to Andhra Pradesh (19 per cent of the total order book) persist, though the share is declining (25 per cent in 2009-10). At `66.05, the stock looks expensive at 25 times 2011-12 estimated earnings.
source - business standard