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Hindustan Construction Company (HCNS.BO) Rs40.10
Various issues impact stock performance; stay Neutral
News
HCC’s stock price fell 28% in the last 2 days vs. BSE Sensex down 2%. We
think the market is worried that (as per reports in major media such as
CNBC-TV18) HCC’s subsidiary Lavasa Corporation is under CBI
investigation as Money Matters was one of the advisors during the sale of
HCC Real Estate Ltd. developed 247 Park in Mumbai, in which IL&FS
Milestone Fund acquired a 74% stake. This worry was compounded
today by a notice to the company from the Ministry of Environment and
Forests requiring it to show cause on environmental clearances obtained
and prima facie violations of Environmental Assessment Notifications.
Analysis
In a public statement issued by HCC, the company has clarified that Money
Matters was one of the advisors during the sale of HCC Real Estate Ltd.
developed 247 Park. HCC Real Estate Ltd. paid a fee of less than 1% to
Money Matters for coordinating this deal. The company has submitted the
required documents to the CBI (Central bureau of Investigation) in the
matter. We believe that pending any further clarity on this, the company
may face difficulty in raising any further debt from banks. However, based
on our estimates, HCC is well funded for its equity requirement for FY11E
for its BOT projects and to repurchase its FCCB based on available cash
balance and credit limit with banks. However, any further capex would
require HCC to raise capital, in our view.
On the environmental issue, status quo ante for construction/development
as of date is to be maintained. We wait for more details from the company
and its further response on the matter.
Implications
We retain our fundamental view and maintain Neutral rating and 12-month
TP.
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