Interest costs in Q3 higher due to CDR package: HCC

Praveen Sood, Group CFO, Hindustan Construction Company (HCC), says that the company has put special thrust on managing the working capital and this quarter has been good as far as working capital is concerned, as there is no further pressure on the working capital.

He also says that the company went for corporate debt restructuring (CDR) and as per the approved CDR package, the interest rate for the first nine months ended September 2012, was much lower. From this quarter, the interest rate as per the CDR package has gone up by almost 1 percent.

On the point of the company turning profitable, Sood says he is doing everything that can be done in the current market condition. "With the interest cost being higher as it is, over which we have little control at this point of time, it is very difficult to say when we will come out, but we have been trying our level best," he adds. Below is the edited transcript of his interview to CNBC-TV18. Q: The interest cost for HCC seems to have stabilised though it is slightly higher this time. Can you give us a sense in terms of what the outlook is with regards to the debt, the interest cost trajectory as well as what we can expect in the coming quarters?
A: We went for corporate debt restructuring (CDR) and as per the approved CDR package, the interest rate for the first nine months ended September 2012, was much lower. From this quarter, the interest rate as per the CDR package has gone up by almost 1 percent. So the interest cost is on the higher side and this will remain stagnant for the next one year, then again it will go up from FY14-15 onwards. Q: Working capital cycle has been bit of a problem for the company and even for the industry per se. How is the company placed on that and what is the outlook going forward?
A: We have put special thrust on managing our working capital and this quarter has been good as far as working capital is concerned, as there is no further pressure on the working capital. We have been able to manage turnover growth without troubling our working capital deployment. We have been able to keep our receivables and work in progress at the same level as it was in the beginning of the year. So we are learning how to survive in difficult circumstances. If other factors improve with a general atmosphere around it where the order booking starts happening, government becomes more productive to help us achieve more turnover by ensuring that all environmental issues and other areas are taken care of, then we should be able to turn the corner much faster. We have been able to control the cost and work within limitations. So wait for better future in the coming months. Q: I want to concentrate on the order backlog which we have seen in a couple of companies now but for you all in particular too it was lower on a sequential basis. Is it because of new orders or is because of better execution, can you just detail the order backlog for us?
A: No, we have achieved a turnover of Rs 1000 crore, it is not substantially more than what we thought. The focus continues to remain where the new orders are not coming. During this quarter we have received only two orders worth about Rs 500 crore. Of course, we were L1 in one more contract worth around Rs 344 crore. Overall, we have been able to achieve a target of around Rs 1000 crore in this quarter.
The figure of Rs 14600 crore of the order booking doesn't include L1 positions of about Rs 2400 crore, which we have received as of now. If we add that we will remain at around Rs 17000 crore worth of order booking which is lower than our expectations. We are still waiting for the government to release the orders. Many government departments like NHAI, NHPC and NTPC have still not released any orders. This continues to remain a problem area. Q: What is the approval status of Lavasa and the status of ongoing projects over there?
A: Lavasa got approval about a year back. It took one year for us to resolve the working capital and additional funding for Lavasa. I am pleased to say that during the last quarter, we have been able to make some headway getting some funds from the banking sector. In the month of January, as of now, we have roughly about 4000 workers working at Lavasa and executing the project. We have been able to escalate the delivery of the villas and the flats which we have booked earlier. So, basically the process was slow till December but from January onwards we are seeing some momentum and we are pushing it faster to get more funds into the Lavasa system so atleast we can continue to achieve better sales and better delivery mechanism in Lavasa. Q: How helpful do you think the CDR has been for the company?
A: CDR has taken care of liabilities on account of repayment of the loans and some of the interest reliefs. Beyond that, CDR is not going to help us. We have to help ourselves. Ofcourse it helps us, because being in CDR, normally we are more conscious of our costs and without being in CDR, we are more conscious of our cost because of the environment around us. So, the focus has always been on to keep the cost down, make sure that we don’t involve our working capital into the projects where we can't recover the money from the clients. So, keeping the working capital under control and keeping the cost under control, are what we are focusing on right now. The earlier focus which we always used to have was to improve turnover, but that is not there at this point of time because the entire focus is on managing cash flows and preserving cash and ofcourse keeping the cost down. Q: How soon before the company turns profitable then?

A: I have not given any guidance that we will come out of the black in the near future. However, given the environment we are still into- a challenging situation where the interest cost is very high, where we have been able to achieve 11 percent operating margins, whatever best we can do under the circumstances, we have been able to achieve it. However, with the interest cost being higher as it is, over which we have little control at this point of time, it is very difficult to say when we will come out, but we have been trying our level best.