Motilal Oswal neutral on HCC, target price of Rs 40

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Moneycontrol Bureau

Motilal Oswal has maintained a 'neutral' rating on Hindustan Construction Company (HCC) with a target of Rs 40 as business environment remains challenging for the construction major.  Even then, success in big ticket projects could boost order inflows in FY12, quoted the research report.

HCC's current order book stands at Rs 181 billion with little progress in key sectors like roads and hydropower. "Sustained high working capital on the back of low recoveries in receivables has kept net debt equity high at 2.2x compared to 1.5x in the year-ago period. The company's interest outgo has also increase 41% to Rs 2.9 billion," Pooja Kachawa told moneycontrol further saying that HCC is trying to keep working capital under control and is acquiring strategic partners to bring additional equity in its real estate ventures.

Meanwhile, the company's current outstanding stands at 10 billion from various authorities like Maharashtra and Andhra Government who had contracted works to HCC. : The company has set up a strategic team to recover claims of Rs 10 billion outstanding from various government agencies. This would bring down its debt," quoted the report.

• Yet, a few key factors could be at play
  The management expects to recover atleast Rs 4 billion in FY12, which would help to bring down debt and interest burden.
  The Bombay high Court is likely to give partial clearance to Lavasa Corporation, a subsidiary of HCC, for constructing a Lavasa city near Pune, subject to certain pre-conditions on July 29.
  HCC is targeting a few high value orders in the Rs Rs 20-30 billion range to ramp up its order
  book. These include: Hyderabad Metro Project, some port projects and also orders from Nuclear Power Corporation HCC's stock was up 0.73% at Rs 34.65 at 10.40 hours on the Bombay Stock Exchange.

Expect working capitals days to decline in FY12 and FY13

Company	FY10 (days)	FY11	FY12(E)	FY13(E)
HCC	259	305	276	269

Source: Motilal Oswal

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