Delayed Lavassa IPO, stuck BOT projects, major issues: HCC

Hindustan Construction Company (HCC) has received awards worth Rs 2400 crore out of Rs 10,000 crore claims lodged by it, says Praveen Sood, CFO of HCC.The company will repay Rs 1,000 crore of Rs 4,800 crore debt in next 18 months, he says.On Lavassa IPO, he says it has been delayed due to lack of appetite for the real-estate and infrastructure sectors. “There is no appetite in the market for the real estate stock at this point of time, so that is why we are finding it little challenging to do the IPO in the moment but all our BRMs (business risk managements) which are basically the top notch BRMs at this point of time, we are working towards it and hopefully we should be able to do something if the appetite for the real estate or infra stocks increases in the future,” Sood tells CNBC-TV18.HCC’s build–operate-transfer (BOT) projects would start operating in next 3-6 months, he says, adding, barring transport, no other sector is in action. Below is the transcript of Praveen Sood’s interview with Sonia Shenoy and Anuj SinghalSonia: The biggest problem for many companies like your self has been the weakness that you have seen in the topline. So, even in the quarter gone by your income was down about 8 percent. In the quarter before that the income was down about 3 percent and in all of FY’15 we haven’t seen much of a recovery. Has there been any respite to the execution problems that companies such as yours have faced and when do you think we could expect to see a considerable pickup in the topline or the revenues?A: The entire sector has seen this, whatever has been come so far has shown that every company in the sector has seen some declining in topline whereas the silver lining has always been that the margins has not shrink and margins has improved overall. I would not like to blame execution problem to the declining topline, it is mainly on account of non receipt of orders for almost now 1.5 years. The pipeline for order inflow has been very slow in the last 1.5 years when the government change took place and normally all infra projects normally which get announced by the government, they have basically a lag time of almost close to about nine months to one year before they started operating. So, we are in the same gap. Hopefully you will find once the order which we have received they are basically start executing them, the bottom line and topline both will improve significantly but we have to still give them time for about maybe another three to six months time. Anuj: What is the latest on Lavasa issue? I spoke about the fact that you tried to do initial public offering (IPO) earlier but it has been the longest pending issue now, what is the latest update?A: We have all the approvals but unfortunately the real estate market continues to remain into the problem. Whatever IPOs started coming in the recent past, they are coming from a different sector and not a single IPO has come into either infra sector or the real estate sector.There is no appetite in the market for the real estate stock at this point of time, so that is why we are finding it little challenging to do the IPO in the moment but all our BRMs which are basically the top notch BRMs at this point of time, we are working towards it and hopefully we should be able to do something if the appetite for the real estate or infra stocks increases in the future.Sonia: You were telling us about the sale of your stake in 247 Park for Rs 160 crore, what are the other non-core assets that you have that you are looking to monetise and reduce your debt?A: We have two more assets which we have announced the deal. One was our one build –operate-transfer (BOT) asset in Andhra Pradesh called Nirmal BOT. The other one which we have announced is Dhule-Palesna is along with Sadbhav, so these two asset also we have sold. We are basically in the last leg of completing the legal formalities and the documentation and the money should flow in by this quarter hopefully. Then of course we have few more BOT projects which we are trying to complete first before we put them onto the block for sale and maybe your will find that they would be mostly completed by the end of this year. So, hopefully the January to March quarter you will find one more sale happening on this line. So, these are the few assets which we are trying to sell.Sonia: You started off by telling us that the non-receipt of orders is what has actually impacted your topline and orders are just not coming through. You have an exposure to various states-Uttarakhand, Andhra Pradesh, Assam, West Bengal. Geography-wise where are you seeing the slowest movement of orders and where are you seeing any signs of green shoots or any pickup in activity, if you could just tell us?A: Instead of geography we are more concerned of the areas where we work on. In fact we target for areas where normally we work or we get the maximum order. The most significant part of order book basically comes from the hydro-power which is exactly causing us lot of problems because this sector is not moving at all. We don’t see huge amount of pipeline also in this sector mainly because of the environmental issues and basically this entire sector is not moving at all.Then come down to the auto sector which is basically the irrigation sector which used to be happen in Andhra and Telengana ports, these two states have just had elections and some work is happening but the pace is still not come and we didn’t see much order coming in this sector.Then come down to transport sector where we are seeing some movement- railways, transport sector, here the movement is fine and most of my orders has come from this sector and then fourth area where we work heavily is nuclear power and the fabrication work and the industrial work, again that are is very slow. So, barring transport area, we are not seeing much action in three areas. Having said that, we have been able to notch close to about Rs 3,000 crore worth of L1 positions in the Q1 of this fiscal year, however we are still not been able to convert those orders, convert those L1 positions into the firm orders and start the work mainly because of certain issues which was lying with them.So, again a cause for concern that even when you become L1 we did our part but due to some restrictions, some environment clearances, some approvals, the order doesn’t turn it normally the work flow start.