Harsh monetary policy only hits development projects: HCC

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Harsh monetary policy only hits development projects: HCC

Ajit Gulabchand, chairman and managing director of HCC joins CNBC-TV18 to take us beyond the company's Q2 numbers and highlight the way forward for HCC.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Hind Constr See previous management interviews See what other Experts & Brokerages are saying about Hind Constr Hind Constr BSE | NSE 30/05/12 Are Mutual Funds betting on Hind Constr?

Seems like Hindustan Construction Company that is caught in a whirlwind of matters, legal and practical, is headed towards the eye of the storm.  Yesterday, the Bombay High Court told the Maharashtra government to take action against the company on the Lavasa issue that has investors feeling jittery. Today, HCC has announced a dismal quarterly result on the back of high interest rate burden and delays in project execution.

Ajit Gulabchand, chairman and managing director of HCC joins CNBC-TV18 to take us beyond the numbers and highlight the way forward for the company.

He agrees that there is indeed a slowdown observed in the business, not only on order intake, but also on the project execution front. With regard to the order book, Gulabchand says that there is a Rs 2000 crore order waiting on the sidelines. "It is not moving any fast. Had they come in already, the order backlog would have looked bigger," he says.

Below is the edited interview. Wait for the video.

Q: Has there been any order inflows in the last quarter? If you can quantify for us what exactly you are expecting in FY12?

A: We did get one order during the last quarter, but the issue is when you are talking of good growth rate in infrastructure, when you saw few years ago, all of us were growing at more than 25% compounded annual growth rate. We were moving at a scorching pace anticipating big turnover, and therefore, gearing the companies to deal with that. Now, even though there is a growth, there is a slowdown. If you take the average of the growth rate, infrastructure has slowed down the most, construction services growth rate have slowed down and that's where the pain comes in. The adjustment period, therefore, becomes difficult.

Q: Even execution seems to be drastically down. You had about Rs 17,000 crore of orders in Q1 and only Rs 16,000 crore in Q2. Is that also looking a bit of a problem area?

A: As far as the new orders are concerned, we have one more big order hanging about L1 in Rs 2000 crore. They are not coming in faster. Had they come in, the order backlog would have looked bigger.

Q: Interest costs have been a bit of a pain now. What are you looking to do in order to deal with this and would there be any kind of fund infusion so that you can reduce some of these costs?

A: This is the challenge that we are facing. For almost all infrastructure companies, investment financing in this country comes from equity as well as from the banking system because very little debt market exists to raise bonds etc. With the rise in interest and tightening of the banks, monetary conditions become increasingly difficult. But we would be looking at different ways to sort this matter out during the year, and I am sure we will find a way to do that. But at the moment, it is kind of a conundrum.

Monetary policy is tightening finance in this country and yet not succeeding in bringing inflation down and therefore, continues to become harsher. It is affecting the development side of the country's investment and not the regular consumption, because most of the country is outside the banking system.

Food inflation cannot be controlled by monetary policy, commodity prices have subsidized so much so consumption adjustments don't take place. Therefore inflation continues. The harsh monetary policy only affects development projects.