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Research
Buy Hindustan Construction Company - Elara Capital
Posted On : 2010-06-11 22:32:41( TIMEZONE : IST )
- Rating : Buy
- Target Price : INR170
- Upside : 52%
- CMP : INR112 (as on 10 June 2010)
HCC announced the divestment of 74% stake in its 1.8mn sqft marquee commercial property, 247 Park in Vikhroli (W) to IL&FS Milestone Fund at an EV of ~INR7.8bn. The 69m tall structure having a leasable commercial space of 1.1mn sqft is spread over three towers, and houses a business centre, ATMs, banks, a gymnasium, food courts and high-end restaurants. The building was adjudged as the `Best Commercial Property in Western Region' in the recently concluded CNBC AWAAZ – CRISIL CREDAI Real Estate Awards'09.
HCC had successfully closed 85% of leasing agreements with renowned tenants like Future group, Orange, Dow Chemicals, IBH Business Process Solutions, Jet Airways, KEC International and DK Hospitality. Future Group (Home Solutions) is the anchor tenant for the park taking a leased space of ~2lac sq ft. While KEC International and Dow have started operations from the premise, others are at the final fit out stage.
The 247 Park project is housed in the Vikhroli Corporate Park Ltd (VCPL), an 80% subsidiary of the HCC Real Estate Ltd (HREL) which in turn is a 100% subsidiary of HCC. The remaining 20% stake is owned directly by HCC. The total project cost of the park stands at INR3.8bn funded by loans from HDFC (INR2.7bn) and HCC (INR1.1bn). We maintain our average lease rentals assumption of INR60/sqft per month from the project thereby estimating an annual revenue flow of INR720mn. Post the transaction, we value HCC's 26% stake in the project at 1.2x the residual equity value of INR3.9bn. Consequently, we assign the contribution from the 247 Park at INR4.1 per share for HCC (vs INR6.8 per share earlier).
Relieves a part of funding concerns; maintain BUY
The transaction is expected to bring in INR2.9bn (pre-tax) to the HCC Group thereby fuelling a part of funding requirements of INR10-12bn (including capex, FCCB redemption, acquisition of Karl Steiner AG and equity infusion towards existing road BOTs) for FY11. We expect divestments across the Infrastructure arm and the proposed IPO of Lavasa Corporation Ltd to take care of the remaining needs. We retain our BUY recommendation on the stock with a revised SOTP based price target of INR170.
