Result Analysis
Sales increase marginally by 4%; order inflows showing signs of improvement:
Company’s sales increased marginally by 4% y-o-y to `8,657mn in line with our
expectations. The company’s order book stands at~ `150.1bn (32% hydro, 33% transport,
21% water and 14% nuclear and others), with an strong order inflow of `19,070 mn. The
order inflow outlook remains bleak as industrial capex has slowed down and also many
projects are facing execution issues on account of which top-line growth is likely to be
sluggish for FY13.
Operating profit jump by 106bps y-o-y and 582bps q-o-q: During 2QFY13, the
company’s operating profit jumped by 13.7% y-o-y to `1,121mn, while the operating
margin improved by 106bps y-o-y and 582bps q-o-q to 12.9% due to better top-line
growth and better cost control management. We expect the operating margin to be at
~10% levels as the share of high margin hydro projects is coming down.
Operating profits and higher other income lead to lower losses; Higher debt and
interest costs still an overhang: Company reported a net loss of `178mn during
2QFY13 below our as well as street estimates due to better operating performance and
higher other income. The company reported a forex gain of `59mn and an exceptional
item of `21.7mn on account of reversal of interest costs due to debt restructuring. Interest
cost rose by 21.1% y-o-y to `1,301 mn.
Other Key Highlights:
Karl Steiner AG; another quarter of strong order inflows: The Company has a strong
order backlog of CHF.1.45bn (~`84bn) while the Company reported a turnover of
CHF185.6mn (~`10.8bn) and inflows to the tune of ~CHF131 mn(~`7.6bn).
HCC Infrastructure: Dhule Palesner Highway has achieved 100% completion for Phase I
while Phase II is progressing well.HCC Infrastructure is expecting a revised toll
notification for the Dhule Palesnar Highway. Execution of West Bengal projects (NH34)
underway and is ~35% complete.
Change in Order book mix –Likely to augur well for the company: On the basis of
current order book mix we believe FY14 onwards top-line is likely to pick up as share of
high gestation hydro projects(32% hydro,33% transport) is coming down, however
operating margin are also likely to take a hit since hydro projects are comparatively higher
margin projects. The major positive which the company is likely to witness on account of
change in order book mix is working capital cycle which is likely to improve FY14 onwards
as transportation and other orders are lower gestation projects.
Outlook and Valuations:
HCC has posted good set of results on the top-line as well as operating front; Top-line is likely
to be sluggish during FY13 due to execution issues and lower capex investments; however
operating performance has improved and is likely to stabilize on account of various cost control
measures. Profitability has been hit badly on account of higher debt and interest costs. Despite
CDR package and control in capex, debt and interest costs are showing no signs of
stabilization and are increasing which is likely to take a toll in its profitability.
Factoring in a) muted order inflows b) improvement in operating performance we maintain our
top-line estimates and marginally increase our operating margin estimates (~20bps); however
interest costs and debt levels are showing no signs of improvement and hence we revise
interest costs upwards. Considering the above factors we revise our FY13 and FY 14 to loss of
`1,797mn (previously loss of `1,856mn) and loss of `1,416mn (previously loss of `1,305mn)
respectively.
Infrastructure segment has been under severe pressure and we not foresee the situation
improving in the near term. HCC has witnessed muted top-line growth however operating
margins are showing signs of stabilisation. The company’s balance sheet is highly leveraged
and with low visibility on fund raising, high debt and interest cost burden are likely to be an
overhang on the stock to and hence we maintain our “Hold rating” on the stock. At the CMP,
the stock trades at 1.1xFY14E P/B and 14.6x FY14E EV/EBITDA.
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