Result Analysis
Execution muted; Order Inflow guidance positive: Company’s sales declined by
15.8% YoY to ~`9.8bn below our and street expectations. The company’s order book
stands at~ `149.4bn (29% hydro, 40% transport, 19% water and 12% nuclear and
others). Execution was badly impacted mainly due to issues in Kashmir which stalled the
execution of Kishanganga project (project value of ~`27bn). The order inflow outlook in
the medium term is muted; however the management has guided to bag orders to the
tune of `50bn in FY14 which is positive despite the weak macro environment. We expect
HCC to bag orders worth ~`29.7bn in FY14. The company’s execution is likely to pick up
in FY14 as transportation projects share in the overall order book pie has increased and
we expect the FY14 revenues to be at ~`41bn.
Operating margin still under pressure: During 4QFY13, the company’s operating
margin expanded by 153bps YoY; however contracted by 163bps QoQ to 9.1%.
Operating margin were below our as well as street estimates mainly led by higher raw
material expenses. We expect the operating margin to be at ~10% levels for FY14 and
FY15 as the share of high margin hydro projects is coming down.
Loss widens to `742mn; forex loss adds to the woes: Company reported a net loss of
`742mn during 4QFY13 higher than our expectations mainly due to execution delays and
forex loss. HCC booked a forex loss of `115.5mn during Q4FY13 as against a gain of
~`10mn during 4QFY12. Interest costs were down 13% YoY at `1,318mn mainly on the
back of corporate debt restructuring.
Other Key Highlights:
Karl Steiner AG; another quarter of strong performance: The Company’s sales grew
by ~5% YoY during FY13 to ~`44.5bn, while it’s PAT increased by 3x to ~0.5bn
duringFY13. During the quarter company received order inflows of ~`4.9bn while it has a
backlog of `70.5bn giving us revenue visibility of 1.5-2 years. Karl Steiner is sitting on a
health cash position of ~`9.3bn.
HCC Infrastructure: The company has achieved 59% progress on Baharampore-
Farakka and 47% progress on Farakka-Raiganj BOT projects and Commercial operation
& toll collection of West Bengal project (NH34) expected later this year.
Lavasa; Work gathering pace - The construction work has started and ~410 units are
further ready to be handed over. On the institutional front it signed a deal with S.K
enterprises for a 0.55 acre plot for a consideration of `45mn (highest price per acre till
date).
Outlook and Valuations:
HCC has posted a weak set of results on the top-line as well as operating front. On the
profitability front interest costs have been contained mainly due to the debt restructuring
programme. The company’s focus for FY14 is clearly on lowering its debt and monetizing its
assets which we believe is difficult at this stage given the unfavorable market conditions. We
expect execution to slowly pick up pace and estimate HCC’s top-line to increase by 6.2%
during FY14 and 9.6% in FY15, while we expect its operating margin at 10% levels. Given the
stretched balance sheet (~4x) interest costs are likely to take a toll on profitability and we
expect HCC to continue post losses in FY14 and FY15.
Infrastructure segment is still under severe pressure and we do not foresee the situation
improving in the near term. Post, the recent RBI rate cuts interest costs for infrastructure
companies are likely to decline marginally. HCC’s balance sheet is highly leveraged and with
low visibility on asset monetization and high interest cost all are likely to impact HCC’s
profitability negatively. Lavasa continues to be an overhang on the stock and hence till further
clarity emerges we recommend “Hold” rating on the stock. At the CMP, the stock trades at
0.9xFY15E P/B and 11.9x FY15E EV/EBITDA.
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