Hindustan Construction - Cutting Estimates - Motilal Oswal

HCC: MOEF maintains status quo on Lavasa – matter likely to be a long-drawn affair; cutting estimates; Target price under review

The report has questioned the authority of the Govt of Maharashtra on issuing environmental clearance and has alleged environmental violation by Lavasa.

Lavasa total infrastructure development cost is estimated at Rs45b, of which Rs15b has been spent.

Town Dasve is on the verge of completion while the second town Mugaon is at the initial stage. All construction work has been stopped at present.

In the books of Lavasa Corporation, total debt stands at Rs18b, including Convertible Bonds of Rs9.5b and long-term debt of Rs8-9b.

Considering the uncertainty surrounding the IPO, risk of refinancing the debt at a higher rate has increased. Interest, Rs2b in FY10, is likely to rise to Rs2.5b in FY11 and to Rs3.4b in FY12.

Motilal Oswal is cutting EPS estimates for FY12 by 30% from Rs2.3 to Rs1.6. Earnings downgrade is largely due to increased interest expenditure. The company had issued US$400m of FCCB in the past, which is unlikely to be converted into equity given steep correction in HCC's stock price. We are reviewing our valuation of Lavasa Corporation and, in turn, the target price for HCC. In the interim, we maintain Neutral rating on the stock.

Source : Equity Bulls

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