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R i s i n g i n t e r e s t c o s t e a t s a w a y b o t t o m l i n e …
Hindustan Construction’s (HCC) Q1FY12 operational performance was in
line with our expectation. However, PAT came at | 2.9 crore vs. our
estimates of | 6.1 crore due to lower other income and higher tax rate of
53.3% on account of disallowing of interest expenses (~7%) made for
debt raised for subsidiary. The company has indicated slower execution
for FY12 and focus on operational efficiency such as reduction in working
capital. While EAC’s Lavasa phase I clearance (with certain preconditions) and equity dilution at HCC concession at | 1650 crore
valuation is a positive development, we believe the key trigger for HCC’s
re-rating would be MoEF approval for Lavasa phase I approval and for the
entire project, which is getting delayed. On the other hand, Lavasa
continues to incur cash outflow of ~| 2 crore per day in terms of fixed
charges. Hence, we are keeping our recommendation under review till
the time it gets MoEF approval.
ƒ Q1FY12 bottomline falls sharply on rising interest expenses
HCC’s Q1FY12 net profit at | 2.9 crore declined sharply on account of
rising interest expenses. Interest expenses grew ~62% YoY to | 93.3
crore on the back of higher debt level and increased interest rates. There
was also higher tax rate of 53.3% on account of disallowing of interest
expenses (~7%) u/s 14 (a) for debt raised by HCC for its subsidiaries.
ƒ Dilution of 14.5% stake in HCC Concessions
HCC has announced that it will raise | 240 crore by diluting 14.5% in its
step-down subsidiary HCC Concessions to private equity player (Xander
Group). We highlight that the transaction values HCC’s concession the
BOT project at ~ | 1650 crore, significantly higher than our as well as
Street expectation.
V a l u a t i o n
At the CMP, the stock is trading at 3.9x FY13E EPS (after adjusting for
subsidiaries valuation) and 1.2x FY13E P/BV. We highlight that although
EAC clearance for Lavasa and stake sale in HCC Concessions is a positive
development, we believe a re-rating of the stock will be possible after
MoEF approval on Lavasa, which is getting delayed. Till the time, we are
keeping our recommendation under review
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
R i s i n g i n t e r e s t c o s t e a t s a w a y b o t t o m l i n e …
Hindustan Construction’s (HCC) Q1FY12 operational performance was in
line with our expectation. However, PAT came at | 2.9 crore vs. our
estimates of | 6.1 crore due to lower other income and higher tax rate of
53.3% on account of disallowing of interest expenses (~7%) made for
debt raised for subsidiary. The company has indicated slower execution
for FY12 and focus on operational efficiency such as reduction in working
capital. While EAC’s Lavasa phase I clearance (with certain preconditions) and equity dilution at HCC concession at | 1650 crore
valuation is a positive development, we believe the key trigger for HCC’s
re-rating would be MoEF approval for Lavasa phase I approval and for the
entire project, which is getting delayed. On the other hand, Lavasa
continues to incur cash outflow of ~| 2 crore per day in terms of fixed
charges. Hence, we are keeping our recommendation under review till
the time it gets MoEF approval.
ƒ Q1FY12 bottomline falls sharply on rising interest expenses
HCC’s Q1FY12 net profit at | 2.9 crore declined sharply on account of
rising interest expenses. Interest expenses grew ~62% YoY to | 93.3
crore on the back of higher debt level and increased interest rates. There
was also higher tax rate of 53.3% on account of disallowing of interest
expenses (~7%) u/s 14 (a) for debt raised by HCC for its subsidiaries.
ƒ Dilution of 14.5% stake in HCC Concessions
HCC has announced that it will raise | 240 crore by diluting 14.5% in its
step-down subsidiary HCC Concessions to private equity player (Xander
Group). We highlight that the transaction values HCC’s concession the
BOT project at ~ | 1650 crore, significantly higher than our as well as
Street expectation.
V a l u a t i o n
At the CMP, the stock is trading at 3.9x FY13E EPS (after adjusting for
subsidiaries valuation) and 1.2x FY13E P/BV. We highlight that although
EAC clearance for Lavasa and stake sale in HCC Concessions is a positive
development, we believe a re-rating of the stock will be possible after
MoEF approval on Lavasa, which is getting delayed. Till the time, we are
keeping our recommendation under review
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