Hindustan Construction - Flash in the pan - Elara Capital

Claim recovery drives operational efficiency, helps beat estimates

HCC continued its paltry quarterly performance on the execution front as revenues grew 4.1% YoY to INR8.6bn. Heightened operational efficiency, helped majorly by a claim recovery, led a 74bps margin expansion as OPMs stood at 12.8%, for the first time since Q1FY12. Further, stable quarterly interest charges at INR1.3bn (led by approval of INR32bn CDR) helped the company in containing adjusted net losses to INR235mn, lower than our & street estimates. The reported net losses at INR179mn were blossomed by net income post reversal of interest cost worth INR22mn owing to the debt restructuring exercise and exchange gain of INR59mn during Q2FY13.

Adds INR12.6bn worth twin jobs, backlog stable at INR151bn

HCC's present backlog at INR151bn still stands strong at 3.6x FY13E revenues, though majorly consisting of long gestation projects where the pace of execution has been considerably slow. Among the key projects bagged during the quarter include construction of 10.2kms tunnel on Udhampur Srinagar Baramulla railway line in J&K by IRCON (INR8.8bn) and INR3.7bn worth design & construction of 2.2kms twin tunnel on Yamuna Vihar corridor under Phase III of the Delhi Metro.

Lavasa crawling again, receives ~0.3mn footfall in Q2

Construction work at Lavasa has resumed with ~3,500 workers deployed presently. While ~150 units have already been handed over at Dasve, another 100 units are nearing completion. LCL has also sold 50+ units across its newly launched second town, Mugaon (~2,400 acres). For H1FY13, LCL posted net losses of INR637mn (+10.3% YoY).

Maintain rating, Mar'13 based TP at INR18

We maintain our stance that the HCC Group has left the worst behind in FY12; however, given the still challenging operating environment, we continue to maintain a negative outlook. A swifter than anticipated progress on 'Lavasa', faster claims recovery (INR20bn) and profitably hiving off noncore assets in FY13-14 (26% stake in 247 Park, land parcels in Thane, Nashik and Pune) pose a threat to our TP & rating.

Source : Equity Bulls

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