Wednesday, August 20, 2008


Hindustan Construction Company or HCC as it is popularly known, is a well known civil engineering company. This is the company which built the Mumbai-Pune expressway, built India’s first underground metro at Kolkata and the second one in New Delhi, made the world’s longest barrage at Farakka in West Bengal, built the unique double curvature arch dam at Idukki in Kerala and also made one of Asia’s largest breakwaters at Ennore Port in Tamil Nadu. It would thus be wrong call it as a mere realty company.

The financial performance of the company for the first quarter ended 30th June 2008, like all in the sector, has been affected but mainly on account of a forex loss which, to a large extent was nullified on account of sale of one of its property.

The turnover of the company rose 22.5% on a YoY at Rs.895 crore. Its EBITDA margin was up 16% at Rs.91 crore. PBT stood at Rs.39 crore as against Rs.56 crore in the previous year same quarter owing to decline in other income (Rs 13 crores this quarter as against Rs 32 crores last year).

But what is also significant to note is that its other income includes a capital gain on sale of its land at Vikhroli (East) of Rs 61.9 crore. It also has a forex MTM loss of Rs.50.6 crore. So if both these are taken into account, the other income has increased by Rs.11.30 crore.

There is no doubt, going by the trend in the industry that there will be a slowdown in the orders. Apart from the soaring costs, being a civil engineering company, where most of the projects are dependent largely on debt, the higher interest rates at the moment would be an impediment. HCC has a well diversified order backlog of Rs 10,196 crore. It is currently executing 37 projects including the two projects it recently bagged in this quarter. HCC is the lowest bidder in four projects worth Rs 4924 crore (HCC share) and is awaiting award of the contracts. Further, it has several tenders under submission worth Rs.11,174 crore.

This means, that to a large extent, HCC will be insulated from taking a turn for the worse. It will be able to maintain its growth but rising above it would be a challenge.

Its wholly owned real estate subsidiary, HREL, is developing LEED certified, state-of-the-art, 1.8 million sq ft multi-tenanted IT Park located at Vikhroli, Mumbai. It is also developing India’s largest Hill Station, Lavasa, spread across a picturesque landscape of 12,500 acres, located 45 minutes away from Pune. Axis Bank has invested Rs.250 crore in this project in the form of convertible preferential shares and debentures. That places the valuation of Lavasa at about Rs 10,000 crore. In terms of direct sales, its June tranche of sales was sold out in about 5-6 days and till date its registered revenue from sales is about Rs.550 crore in Lavasa.

Currently quoted at Rs.97, stay invested and it makes an attractive buy if it falls below Rs.80.



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