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PAT above expectations, aided by higher margins and other income
Hindustan Construction Company’s (HCC) Q4FY11 revenues were slightly below
our expectation with topline coming in at INR 12 bn, higher 11% Y-o-Y and 19%
Q-o-Q. EBITDA margins at 13.8% surprised positively, up 70bps Q-o-Q and
250bps Y-o-Y. However, interest charges continued to hurt, jumping sharply to
INR 903 mn, up 104% Y-o-Y and 21% Q-o-Q. Aided by forex gain of INR 116 mn
(against loss of INR 61 mn in Q3FY11), PAT at INR 236 mn was much higher
compared with INR 80 mn in Q3FY11.
Order book at INR 181 bn; order intake remains weak
During FY11, HCC booked new orders of ~INR 34 bn (against INR 60 bn in
FY10). Its order book dipped to INR 181 bn against INR 185 bn at Q3FY11 end
and INR 188 bn at FY10 end. The company is L1 in INR 12 bn worth of projects.
Outlook and valuations: Lavasa the key; maintain ‘HOLD’
Slowdown in project awards, stretched working capital cycle and high interest
rates continue to hurt HCC’s profitability. Environmental concerns on Lavasa
remain, delaying progress on the project and its potential listing. Uncertainty
over any potential penalty on Lavasa, delays in start of work, and changes in
project scope and design could linger until the project has all clearances in place.
We are cutting our estimates for FY12 and FY13, given continued deterioration in
working capital cycle and high interest rates. While our revenue projections are
more or less the same, our PAT estimates are lower by 24% and 8% for FY12
and FY13, respectively. We are cutting the P/E multiple for the contracting
business to 8x from the earlier 10x. Further, we continue to value Lavasa for the
2,000 hectares, for which, environmental clearance from the state govt has been
bagged. Our sum-of-the-parts-based target price for the stock now stands at
INR 40 (INR 44 earlier) — EPC business contributes INR 6/share (INR 11/share
earlier), BOT projects INR 14/share and Lavasa INR 16/share, with the balance
coming from the realty business. We maintain our ‘HOLD’/ ‘Sector performer’
recommendation on the stock. An early resolution of the Lavasa conflict remains
key for the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PAT above expectations, aided by higher margins and other income
Hindustan Construction Company’s (HCC) Q4FY11 revenues were slightly below
our expectation with topline coming in at INR 12 bn, higher 11% Y-o-Y and 19%
Q-o-Q. EBITDA margins at 13.8% surprised positively, up 70bps Q-o-Q and
250bps Y-o-Y. However, interest charges continued to hurt, jumping sharply to
INR 903 mn, up 104% Y-o-Y and 21% Q-o-Q. Aided by forex gain of INR 116 mn
(against loss of INR 61 mn in Q3FY11), PAT at INR 236 mn was much higher
compared with INR 80 mn in Q3FY11.
Order book at INR 181 bn; order intake remains weak
During FY11, HCC booked new orders of ~INR 34 bn (against INR 60 bn in
FY10). Its order book dipped to INR 181 bn against INR 185 bn at Q3FY11 end
and INR 188 bn at FY10 end. The company is L1 in INR 12 bn worth of projects.
Outlook and valuations: Lavasa the key; maintain ‘HOLD’
Slowdown in project awards, stretched working capital cycle and high interest
rates continue to hurt HCC’s profitability. Environmental concerns on Lavasa
remain, delaying progress on the project and its potential listing. Uncertainty
over any potential penalty on Lavasa, delays in start of work, and changes in
project scope and design could linger until the project has all clearances in place.
We are cutting our estimates for FY12 and FY13, given continued deterioration in
working capital cycle and high interest rates. While our revenue projections are
more or less the same, our PAT estimates are lower by 24% and 8% for FY12
and FY13, respectively. We are cutting the P/E multiple for the contracting
business to 8x from the earlier 10x. Further, we continue to value Lavasa for the
2,000 hectares, for which, environmental clearance from the state govt has been
bagged. Our sum-of-the-parts-based target price for the stock now stands at
INR 40 (INR 44 earlier) — EPC business contributes INR 6/share (INR 11/share
earlier), BOT projects INR 14/share and Lavasa INR 16/share, with the balance
coming from the realty business. We maintain our ‘HOLD’/ ‘Sector performer’
recommendation on the stock. An early resolution of the Lavasa conflict remains
key for the stock.
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