HCC - Margin expansion lead to lower losses - IDBI Capital

Revenue tad below estimate at Rs8.7 bn; 20-30% of the current O/B slow moving

After four successive quarters of decline, HCC reported a 5% YoY growth in revenue at Rs8.7 bn (IDBIe Rs8.8 bn). Net order inflow for 1HFY13 stood at Rs12.5 bn (Rs19.1 bn of fresh orders and Rs6.6 bn worth of cancellations). Order back log remained stagnant QoQ at Rs150.8 bn. According to management, slow moving orders account for 20-30% of the current order book, thereby impacting execution.

OPM a positive surprise; EBITDA 71% above estimate

EBITDA was 71% ahead of estimate at Rs1.1 bn (+14% YoY), led by 580bps QoQ jump in operating margin to 13.9%. Cost of material consumed declined from 33.9% of revenue in Q1FY13 to 30.8% in Q2FY13 (30.3% in Q2FY12). We have revised our margin assumption for FY13 to 9.5% v/s 7.6% earlier (FY14 assumption remains unchanged at 11.5%).

Interest expense up 2% QoQ; adjusted net loss at Rs259 mn

Interest expense increased 2% QoQ to Rs1.3 bn but declined 4% on a YoY basis on account of corporate debt restructuring (CDR). Adjusted for forex gain of Rs59 mn and interest reversal of Rs22 mn, net loss came in at Rs259 mn, against our estimated net loss of Rs576 mn.

Maintain REDUCE; TP stays at Rs15

Muted execution and stretched working capital cycle of EPC business will continue to have a negative impact on HCC's financial performance. Although our FY13 estimates for the standalone business stands revised due to change in our margin assumption, our FY14 estimates remain largely unchanged. Consequently, we maintain our REDUCE rating and TP of Rs15 for HCC. Standalone business contributes negative Rs31 (4.5x FY14 EV/EBITDA), while subsidiaries account for Rs46 per share.

Source : Equity Bulls

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