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A q u a r t e r f u l l o f o n e o f f s …
HCC’s Q3FY12 operating performance (though ~94% is used to serve
debt) was broadly in line with expectations. The one off provisions
relating to cost escalations, losses in projects and forex losses led to a
sharp expansion in losses in Q3 FY12. Adjusting for these one-offs, HCC’s
losses were lower than expected on account of lower-than-anticipated
interest cost with lower use of CC* limit in the quarter. Going ahead,
while, the conditional approval for Lavasa’s Phase I development is
positive news, the EPC business remains a drag due to stretched working
capital, slower execution and delays.
ƒ One-offs lead to higher losses…
HCC reported losses of | 130.4 crore vs. our estimates of | 44.6 crore
in Q3FY12 due to one-offs relating to cost escalations, losses in
projects, forex losses, etc. Adjusting for these one-offs, the losses came
at | 24.8 crore, lower than our estimates due to better-than-expected
margins (11.7% vs. our estimates of 11.5%) and lower interest cost.
ƒ Conditional approval for Lavasa Phase I…
During Q3FY12, ministry of environment & forest (MoEF) accorded
conditional approval to Lavasa Corporation for development of phase I
at Lavasa involving development of 2000 hectares. This is a positive
development for HCC as monthly losses of | 55 crore have stopped and
construction has resumed. However, we would like to see further
progress at Lavasa in terms of development & debt restructuring.
ƒ Operating profits still struggling to serve debts…
Interest expenses at 94.4% of EBITDA mean that almost the entire
operating profits are used to service debts. With the stretched working
capital, high raw material cost and execution rate yet to pick up, HCC’s
EPC business remains a major drag. Improvement in working capital
would remain key for HCC for any improvement, going ahead.
V a l u a t i o n
At the CMP, the stock is trading at 1x FY13 P/BV. While conditional
resolution of the Lavasa issue is positive news, the EPC business has
become a major drag due to slower execution, sharp increase in debt and
deteriorating working capital. We have assigned a HOLD rating to the
stock with a target price of | 20/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
A q u a r t e r f u l l o f o n e o f f s …
HCC’s Q3FY12 operating performance (though ~94% is used to serve
debt) was broadly in line with expectations. The one off provisions
relating to cost escalations, losses in projects and forex losses led to a
sharp expansion in losses in Q3 FY12. Adjusting for these one-offs, HCC’s
losses were lower than expected on account of lower-than-anticipated
interest cost with lower use of CC* limit in the quarter. Going ahead,
while, the conditional approval for Lavasa’s Phase I development is
positive news, the EPC business remains a drag due to stretched working
capital, slower execution and delays.
ƒ One-offs lead to higher losses…
HCC reported losses of | 130.4 crore vs. our estimates of | 44.6 crore
in Q3FY12 due to one-offs relating to cost escalations, losses in
projects, forex losses, etc. Adjusting for these one-offs, the losses came
at | 24.8 crore, lower than our estimates due to better-than-expected
margins (11.7% vs. our estimates of 11.5%) and lower interest cost.
ƒ Conditional approval for Lavasa Phase I…
During Q3FY12, ministry of environment & forest (MoEF) accorded
conditional approval to Lavasa Corporation for development of phase I
at Lavasa involving development of 2000 hectares. This is a positive
development for HCC as monthly losses of | 55 crore have stopped and
construction has resumed. However, we would like to see further
progress at Lavasa in terms of development & debt restructuring.
ƒ Operating profits still struggling to serve debts…
Interest expenses at 94.4% of EBITDA mean that almost the entire
operating profits are used to service debts. With the stretched working
capital, high raw material cost and execution rate yet to pick up, HCC’s
EPC business remains a major drag. Improvement in working capital
would remain key for HCC for any improvement, going ahead.
V a l u a t i o n
At the CMP, the stock is trading at 1x FY13 P/BV. While conditional
resolution of the Lavasa issue is positive news, the EPC business has
become a major drag due to slower execution, sharp increase in debt and
deteriorating working capital. We have assigned a HOLD rating to the
stock with a target price of | 20/share.
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