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Expect clarity on Lavasa issue very soon
Order book mix continues to remain strong with c44 projects contributing c50% of the order book (INR185bn).
Company has sufficient cash balances to repay the USD100m foreign currency convertible borrowing in April 2011.
Construction continues to be at a standstill at the Lavasa project. However, management discussions with government,
including the Ministry of Environment and Forests over environmental clearance, suggest a solution is likely to be reached
over the next 30 days.
HCC expects the total impact of the delay in the Lavasa project at INR0.9bn, of which INR0.6bn is interest cost. The
entire impact, including any future contingencies, is estimated at INR2bn. While this will increase the peak funding
requirement, major shareholders in the project are likely to contribute towards the additional funds.
Management would like Lavasa to tap the capital markets with an initial public offering. We would expect to see the
environment issue resolved first.
Despite recent issues, the company says no sales at the Lavasa project have been cancelled over the past three months.
Contrary to market perceptions, the Lavasa project has received an increased number of booking inquiries, although the
company is yet to reopen bookings.
Valuation and risks
We value HCC at INR53 using sum-of-the-parts, which includes construction business at INR22 (7x Sep 2012e EPS), real
estate projects at INR12 and road assets at INR19. Our construction business valuation at a PE of 7x, is 30-45% lower than
peers, which reflects HCC’s weak balance sheet and delay risks on its long capex cycle-driven business model.
Risks: Resolution of the Lavasa dispute and weaker than expected execution in its construction business owing to higher
leverage (net debt equity at 1.9x as at end of 1H FY11) are key risks to our investment thesis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Expect clarity on Lavasa issue very soon
Order book mix continues to remain strong with c44 projects contributing c50% of the order book (INR185bn).
Company has sufficient cash balances to repay the USD100m foreign currency convertible borrowing in April 2011.
Construction continues to be at a standstill at the Lavasa project. However, management discussions with government,
including the Ministry of Environment and Forests over environmental clearance, suggest a solution is likely to be reached
over the next 30 days.
HCC expects the total impact of the delay in the Lavasa project at INR0.9bn, of which INR0.6bn is interest cost. The
entire impact, including any future contingencies, is estimated at INR2bn. While this will increase the peak funding
requirement, major shareholders in the project are likely to contribute towards the additional funds.
Management would like Lavasa to tap the capital markets with an initial public offering. We would expect to see the
environment issue resolved first.
Despite recent issues, the company says no sales at the Lavasa project have been cancelled over the past three months.
Contrary to market perceptions, the Lavasa project has received an increased number of booking inquiries, although the
company is yet to reopen bookings.
Valuation and risks
We value HCC at INR53 using sum-of-the-parts, which includes construction business at INR22 (7x Sep 2012e EPS), real
estate projects at INR12 and road assets at INR19. Our construction business valuation at a PE of 7x, is 30-45% lower than
peers, which reflects HCC’s weak balance sheet and delay risks on its long capex cycle-driven business model.
Risks: Resolution of the Lavasa dispute and weaker than expected execution in its construction business owing to higher
leverage (net debt equity at 1.9x as at end of 1H FY11) are key risks to our investment thesis.
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