Hindustan Construction Company (HCC) reported second quarter standalone net profit at Rs 6.8 crore versus Rs 31.6 crore in the year-ago period. But the previous year’s profit figure included a big other income figure of Rs 116 crore, which led to a bottomline profit of Rs 31.6 cr for Q2FY14. Praveen Sood, CFO of HCC says the company is trying to maintain profitability at these levels. He hopes that the next two quarters will be as good as the last six quarters.
He says the profitability margins are coming from efforts to bring down costs. The company is not seeing any major push on the order inflow side and the good margins reported is despite that. Order inflows from the government side has not picked up yet, says Sood. He expects government order inflows to pick up only from next year. He says: "Realised Rs 400 crore of claims in the last two quarters which helped push margins. We hope to realise similar claim amounts in the second half of the year."
HCC has Rs 4,000 crore stuck in arbitration. He expects the government to pay its dues in the next few months.
The company is seeing order inflow momentum only in the road sector as of now. But sectors such as hydro and nuclear power saw no pick up in order inflows. Sood hopes to end year with Rs 14500-15000 crore order book position.
Also Read: HCC Q2 PAT declines 78% at Rs 6.8 cr
Below is the verbatim transcript of Praveen Sood's interview with Archana Shukla on CNBC-TV18.
Q: Can you sustain profitability at current levels?
A: We are trying to keep it at sustainable levels. Last six quarters have been good and we hope that next two quarters will also be equally good and we should be able to post the profit numbers once more, all efforts are being made in the direction.
Q: Where is this growth coming from, which are these businesses which are seeing a pickup that is helping you push this growth forward?
A: Our strategy at this point is very clear. We are working on lower base of order booking and focus is improving our productivity, our efficiency as well as keeping our cost down. So entire profitability margin and the turnover growth is coming from these steps which we have taken over a period of time and we hope to continue with the same effort in the near future.
This is coming in spite of not very big push coming from the order booking side because the government side orders have not picked up even now after five months of new government, which we hope will start picking up from the next year onwards and not before that and till that time we have to continue with our strategy that whatever is there in our plate we should be able to do our best in that case, achieve good efficiency and keep our focus on the claim management where a lot of money is due from the government agencies and most of the cases are into the arbitration or various level of disputes which we are trying to clear them as much as possible. Hopefully we should be able to achieve this kind of momentum in the next two quarters more and our efforts are on in this matter.
Q: Which would be these businesses where you would see this push in the next two quarters?
A: We have only one segment, construction where we get these claims from and entire focus in on the four areas – we have certain claims in the road sector, we have certain claims into hydropower sector, we have certain claims into water sector where we are focusing to make sure that our dues which is on the government get reestablished through the process of arbitration or the court process and we should be able to get margins from those.
Q: In the first half of this year and particularly this quarter how much was the claim settlement that the company recorded in their statement and going forward in the second half of this fiscal how much is into arbitration and how much of that would materialise?
A: In the last two quarters we have been able to get claims worth about Rs 400 crore accounted for in the books of accounts which has given us a good margins. Currently we have close to about Rs 4,000 crore worth of award in arbitration and we hope that we should be able to make some progress. I would not like to give any number to this. Our efforts are on to get as much as possible but we hope that the number would be equally good what we could have achieved in the last two quarters. So let’s keep fingers crossed and hopefully we should be able to better than that.
Q: In terms of order book position you said order inflows have not picked up. It is just been five months that the new government has come in but the order inflows haven’t picked up that much. What is the order book position for the company and the order inflows because there are couples of bids in which you are L1? How does the rest of the year look like when we talk about order inflows?
A: We have seen momentum only in one area at this point of time which is the road sector where the momentum is happening. Rest of the area where we operate hydropower, nuclear power, there is not much momentum, not much stocks are coming up but in road sector quite a large number of orders are expected. So let us hope. We are able to get L1 position in orders worth about Rs 2,700 crore which we hope to convert into real orders by the end of this year and that will leave us with an order backlog of close to Rs 14,500 crore or Rs 15,000 crore plus which is good looking at the fact that the order inflow has not started in a big way and the new government will take some more time to start pushing these reforms and order release from next year onwards and by that time we should be able to gear up ourselves more to not only get the order but execute them as early as possible.
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