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India Equity Research Reports, IPO and Stock News
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Impressive 12% EBIDTA growth in 1Q was eaten away by high interest cost leading to a
sharp dip in PAT. The PBT results were better than we expected, but below consensus. With
the PE funding of BoT assets concluded at better than our estimate, we upgrade our target
price. We recommend Buy.
PBT exceeds our estimate, but is below consensus
HCC recorded 12% yoy growth in EBIDTA in the 1Q on just 7% sales growth. However, a
62% yoy hike in interest expenses led to a squeeze on PBT (down 85% yoy). The PBT
results surprised us, as we expected interest cost to rise qoq, whereas it was reported as flat.
The high tax rate further dampened the EPS growth rate to a 91% decline yoy. The order
book in the quarter dipped 12% qoq, as the Sawalkot order was withdrawn due to delays.
Analysts meeting highlighted challenging business environment
At the recent analysts meeting, management cited a continued slowdown in decision making
at the government level having an impact on order inflow, project execution and payment
delays. Given a recent change in the environment ministry, we believe things should begin to
ease in the coming months. A 4% qoq increase in net debt highlights continued working
capital pressure for the company. However, fresh fundraising (14.5% dilution) by the BOT
subsidiary at a valuation of Rs16.5bn is substantially better than our estimate of Rs11.8bn.
This highlights the value unlocking potential of subsidiaries.
Increasing our target price for BOT subsidiary valuation trigger
We maintain our parent EPS and valuation. The 2Q should be challenging, given that it is a
seasonally weak quarter and interest rates are on a steep rise. However, we increase our
valuation of the BOT subsidiary to match the private equity deal value. This leads to an increase
in our per share value of the BOT subsidiary from Rs15.8 to Rs19.8 (after a 15% holding
company discount). Consequently, our SOTP value increases to Rs51.6 per share. The key
trigger to watch is any favourable decision in HCC’s ambitious Lavasa project, which awaits
environmental clearance. For the core construction business, relief on working capital in terms of
lower receivables or pending arrears being cleared by the government can act as a trigger. We
maintain a Buy, with 59% potential upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Impressive 12% EBIDTA growth in 1Q was eaten away by high interest cost leading to a
sharp dip in PAT. The PBT results were better than we expected, but below consensus. With
the PE funding of BoT assets concluded at better than our estimate, we upgrade our target
price. We recommend Buy.
PBT exceeds our estimate, but is below consensus
HCC recorded 12% yoy growth in EBIDTA in the 1Q on just 7% sales growth. However, a
62% yoy hike in interest expenses led to a squeeze on PBT (down 85% yoy). The PBT
results surprised us, as we expected interest cost to rise qoq, whereas it was reported as flat.
The high tax rate further dampened the EPS growth rate to a 91% decline yoy. The order
book in the quarter dipped 12% qoq, as the Sawalkot order was withdrawn due to delays.
Analysts meeting highlighted challenging business environment
At the recent analysts meeting, management cited a continued slowdown in decision making
at the government level having an impact on order inflow, project execution and payment
delays. Given a recent change in the environment ministry, we believe things should begin to
ease in the coming months. A 4% qoq increase in net debt highlights continued working
capital pressure for the company. However, fresh fundraising (14.5% dilution) by the BOT
subsidiary at a valuation of Rs16.5bn is substantially better than our estimate of Rs11.8bn.
This highlights the value unlocking potential of subsidiaries.
Increasing our target price for BOT subsidiary valuation trigger
We maintain our parent EPS and valuation. The 2Q should be challenging, given that it is a
seasonally weak quarter and interest rates are on a steep rise. However, we increase our
valuation of the BOT subsidiary to match the private equity deal value. This leads to an increase
in our per share value of the BOT subsidiary from Rs15.8 to Rs19.8 (after a 15% holding
company discount). Consequently, our SOTP value increases to Rs51.6 per share. The key
trigger to watch is any favourable decision in HCC’s ambitious Lavasa project, which awaits
environmental clearance. For the core construction business, relief on working capital in terms of
lower receivables or pending arrears being cleared by the government can act as a trigger. We
maintain a Buy, with 59% potential upside.
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