IDFC Securities - Hindustan Construction Co. Ltd. (HCC) HCCs Q3FY20 results (Underperformer) - Initiated debt carve out of Rs21bn

Report

IDFC Securities

Shirish Rane

HCC's Q3FY20 results (Underperformer) - Initiated debt carve out of Rs21bn

Q3FY20 result highlights

During the quarter, HCC reported a revenue decline of 2.4% yoy to Rs10.7bn (below our estimate of Rs12.3bn). Delay in execution of Mumbai Coastal road project continues to impact the revenues adversely. Note that work has resumed on the projects after Supreme Court order.
EBITDA grew by 9.8% yoy to Rs2.2bn (in line with our estimates) led by lower cost of raw materials and favourable mix towards higher margin projects. As a result, EBITDA margin came in at 20.4%.
Adjusted loss in Q3FY20 was Rs977m (vs profit of Rs99m in Q3FY19). However, HCC reported profit of Rs1.7bn due to reversal of provisions related to arbitration award and claims of Rs3.3bn.
Order backlog as on December 2019 stood at Rs161bn, a declined 11% yoy and a book to bill ratio of 3.8x. During the quarter, HCC booked order of worth Rs2.1bn.
HCC, in consultation with lenders, have initiated a transfer of Rs21bn (Rs8bn of term loans and cash credit of Rs11.1bn) of debt into a SPV (a third party SPV) along with Rs21bn of awards and Rs32bn of claims. The tenure of the debt will be 10 years. This is expected to address the cash flow stress and working capital issues for the company in next 12 to 18 months. HCC will be left with debt of Rs26bn with no repayment obligations for next two to three years.
Indian government has decided to challenge the arbitration awards only after seeking the legal opinion (rather than challenging each awards). HCC expects to accelerate the settlement of awards/claims of ~Rs40bn (being pursued at HCC concessions level).

Key positives: Debt carve out to solve cash flow issues in medium term; Indian government not to challenge every arbitration awards

Key negatives: Delay in monetisation of arbitration claims

Impact on financials: Reduce our earnings estimates for FY21E due to slow execution and introduce our FY22E earnings estimates.

Valuations & view

HCC’s core execution continues to remain constrained due to tight liquidity situations. HCC has initiated a debt carve out with the lenders for Rs21bn of debt. We expect execution to recover 12 to 18 months post the debt carveout. Meanwhile, the earnings visibility continues to remain weak elevated debt/ borrowing costs. As a result, we maintain our Underperformer rating on HCC with a price target of Rs8.â€‹

24/02/2020 7 EN

Underlying

Hindustan Construction Co. Ltd.

Hindustan Construction Company Limited is engaged in engineering and construction activities. The Company's segments include Engineering and Construction, Infrastructure, Real estate, Comprehensive Urban Development and Management, and Others. The Company provides engineering and construction services for projects across sectors, such as power, transportation, water and industrial projects. Its operations include construction of dams, barrages, tunnels, underground power stations and surface power stations, along with water conductor systems, such as surge shafts, pressure shafts and penstocks. Its operations also include material handling, such as aerial cableways for concrete placement, tower cranes, ropeways and hydraulic operated traveling/collapsible tunnel formwork, among others. It provides solutions in nuclear power by tie-ups with engineering and construction solution providers. In addition, the Company delivers transport systems, bridges and highways.

See profile

INE549A01026 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

See profile

Analysts

Shirish Rane

Other Reports on these Companies

SmartInsider

Hindustan Construction Co: 1 director sold

A director at Hindustan Construction Co sold 400,000 shares at 11.613INR and the significance rating of the trade was 70/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clearly showing Close periods where trading activity is restricted under listing rules. The na...

Free Trial

December 3, 2019 December 3, 2019 1 EN

TheScreener

HINDUSTAN CON.CO.LTD. reduces its risk exposure and slightly improves to Neutral

The independent financial analyst theScreener just allocated a lower risk rating to HINDUSTAN CON.CO.LTD. (IN), active in the Heavy Construction industry. As regards its fundamental valuation, the title still shows 3 out of 4 possible stars. Its market behaviour, however, has slightly improved and can be qualified as moderately risky. theScreener considers that these elements merit an overall rating upgrade to Neutral. As of the analysis date November 22, 2019, the closing price was INR 10.60 and its expected value was estimated at INR 8.46.

Free Trial

November 23, 2019 November 23, 2019 6 EN

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Q3FY20 result highlights Airport traffic recovered in Q3FY20 with Delhi Airport witnessing a 7% yoy growth in passenger (vs 5% decline in H1FY20) and Hyderabad Airport reporting a 9% growth in passenger traffic (vs 4.9% in H1FY20). Note that traffic was subdued in H1 because of Jet Airways shutdown of operations. GMR Infrastructure (GMR) revenues grew by 11% yoy to Rs16.7bn aided by strong non aero revenues growth of 12% and 138% yoy growth in rental revenues. EBITDA for airport business was Rs6.7bn, +28% yoy Energy Business - Warora and Kamalanga PLF for Q3FY20 was 81% (vs 75% in Q3FY1...

February 24, 2020 February 24, 2020 12 EN

Bhoomika Nair

Bhoomika Nair

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Q4CY19 result highlights Adj PAT +54% yoy to Rs4.55bn: was above estimates on lower tax (shifted to new tax regime) while operational performance was in-line. Volume increased 6.7% yoy: to 6.54mn tons led by pickup in demand in North and East, growing ahead of industry (mkt share gains). Realisations +2.7% yoy: to Rs4795/t due to sharp price hikes across regions in 1HCY19. This was further augmented by 14% yoy growth in premium products. Hence, revenue was up 9.5% yoy to Rs31.4bn. However, on a qoq basis realisations fell by Rs198/t (-4% qoq) as prices have corrected across regions from p...

February 24, 2020 February 24, 2020 6 EN

Nitin Agarwal

Nitin Agarwal

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

Event Unit IV has received an Establishment Inspection Report (EIR) with Voluntary Action Initiated (VAI) status by USFDA Key highlights With the receipt of this status, FDA will now start granting new ANDA approvals from this facility. Notably, in mid-November, the USFDA had conducted a surprise inspection for nearly 10 days in Unit 4, post which it had issued 14 observations. While our read of the observations suggested that most of these were primarily procedural, market has been concerned around potential escalation of the issues into an OAI which, in turn, would have impacted revenu...

February 24, 2020 February 24, 2020 4 EN

Sign-up for free to access full reports immediately

Email Address*

Choose Password* ( 6 or more characters )

Due to regulatory restrictions regarding the distribution of financial research, this report is restricted to a specific region or investor type. Get access to exclusive reports by answering the questions below.

Select your country*

Get financial insights straight to your inbox

By clicking "register" you accept the Terms and Conditions & Privacy Policy

Already on ResearchPool?

Almost there...

Are you a professional investor?

Select your country

REGISTER

Create a free ResearchPool account to access full reports, get a personalised dashboard and follow providers or companies

In order to access this report please create an account.

LOGIN

HCC's Q3FY20 results (Underperformer) - Initiated debt carve out of Rs21bn

Hindustan Construction Co: 1 director sold

HINDUSTAN CON.CO.LTD. reduces its risk exposure and slightly improves to Neutral

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

Create a free ResearchPool account to access full reports, get a personalised dashboard and follow providers or companies

Sign-up for free to access full reports immediately

ResearchPool Subscriptions

Get the most out of your insights

Why subscribe?

How to subscribe

ResearchPool Subscriptions

This report is only available to subscribers

Why subscribe?

How to subscribe