Hindustan Construction Company (HCC) reported a weak set of third quarter earnings where its revenue fell 10.8 percent to Rs 944 crore year-on-year (YoY) and net profit was down 80 percent to 4.5 crore (YoY).
Speaking to CNBC-TV18, Praveen Sood, Group CFO said that the company expects its turnover to grow at around 50 percent over the next 2 years.
He further said that the HCC's debt level has been reduced to Rs 4,000 crore from Rs 5,000 crore in this quarter.Below is the verbatim transcript of Praveen Sood's interview to Latha Venkatesh & Anuj Singhal on CNBC-TV18.Latha: We know the numbers in this quarter have been impacted because of lower arbitration awards that we were expecting and didn't come and the recovery that we keep on hearing about owing to the debt recast that appears to be a quarter away. In this context can we expect strong growth in FY18 and 19? A: The answer is very clear. We have an order book growth of close to about 50 percent and normally in a construction sector or engineering, procurement and construction (EPC) sector the order book growth follows by the growth in the turnover to the same extent with a lag of close to about one-and-a-half to two year period. So by that estimate if you go by, we expect that the turnover for 2018-19 would grow up by 15 percent because my order book has grown by 50 percent in the last year in 2016-17. So you may see a growth of 25 percent in next year and the balance 25 percent growth coming into next to next year, which is '18-19. So for '17-18 you can presume a growth of 20-25 percent in the turnover whereas in '18-19 you can expect further growth of 25 percent. This way we will achieve entire 50 percent growth which is reflected in my order book growth this year.Anuj: What about margins. They have been weak this quarter, down 2 percent. Is there pain in some specific project or is this businesswise weakness and also give a word on outlook?
A: My operating margin from this business is around 12 percent. The margin which you are looking at 21 percent or 17 percent, they are the margins which are not sustainable. These margins are being received by me because we continue to receive award after awards every quarter for the last eight or nine quarters. So this year again we have received an award for Rs 34 crore which gave me a margin of above 50 percent which has distorted the entire margin numbers. So overall my margin from operations would be same in the range of around 12-13 percent and it all depends upon the awards which we received, the arbitration award which we will receive during the quarter, they will decide how much more numbers I will achieve. So what I feel is that going forward we expect further awards but my operating margin will continue to be at 11-12 percent and if we do a growth in turnover by about 25 percent in the next year, so my margin will grow on the same percentage, 11-12 percent on the additional turnover.
Latha: Your press release says that Q4 is going to be a game changing quarter given your current debt situation and this stuck arbitration claims which are only coming in a trickle, can you tell us how that would be?
A: With Scheme for Sustainable Structuring of Stressed Assets (S4A) implementation my debt level has already come down from Rs 5,000 crore to almost Rs 4,000 crore. An impact of Rs 1,000 crore has already happened which will bring down my interest cost by about 25 percent in the next itself means Q4 and if this Rs 1,721 crore also received by me by this quarter, by the end of March then the other advantage we will get is by way of reduced interest cost because this money will go towards payment of debt only as per the circular of the Cabinet Committee on Economic Affairs (CCEA). So this will bring down another Rs 50-60 crore worth of cost reduction per quarter in my interest cost. So if we manage to implement both these scheme and get the money against the claims award, we are looking towards Rs 100 crore worth of interest saving on these two counts from the current situation, so a very encouraging factor and maybe a game changer for HCC.
Anuj: You were telling us about refinancing of Lavasa. Can you give us an update on that and also when can we expect Lavasa to turnaround?
A: As far as Lavasa is concerned, last time we discussed about it, we are trying to restructure the basic loans and convert them into a long-term infrastructure loan. Last time when we discussed about it in the last quarter, we were having the approvals from the bankers, to an extent of 65 percent of the bankers have approved the scheme which we have proposed to them and in this quarter we have made progress an now 72 percent of the bankers have approved the scheme. We are waiting for one more bankers to sanction the scheme or maybe approve the scheme then we will cross 75 percent and can force other lenders to fall in line. Once that happens, we have new lines and new avenues for Lavasa, so we make sure that Lavasa comes back with a great future because one the banking arrangements are made then we can always insist or we can always get either a strategic partner or a strategic equity player to come in and put some more money in and restart Lavasa, so Lavasa to restart immediately. This Budget has been good because some proposal have been made regarding sustainable housing which Lavasa can take advantage of because most of the housing in Lavasa is below 600 meter of carpet area. So we are looking at the Budget, we are looking at the rising scenario for the real estate industry because many sops have been given in the Budget regarding revival of real estate.
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