Hoping to maintain double digit margins in FY14: HCC

It has been a good quarter for Hindustan Construction Company as it is back in the black with Rs 31.60 crore profit for the quarter ended September 30, on the back of other income – a one-time gain on account of settlement with an undisclosed creditor. The leading construction firm had reported a net loss of Rs 17.87 crore in the corresponding quarter of the previous year. But Praveen Sood, CFO, Hindustan Construction Company says at the operating level, the company has always clocked double digit margins and hopes to continue the trend in the near future. He says it is the interest cost which is causing the losses.

Also Read: HCC logs Rs 31.60cr net profit in Sept quarter
According to him, though margins have been under pressure - but in the construction industry it is very difficult to capture margin on a quarter on quarter basis, it is best to see margins on a yearly basis. On the cost side, the company has been successful in bringing down fixed cost, employee cost and other expenses, which is helping in keeping margins intact.
He says the monsoon season for a construction company is always dull and hence Q2 turnover is a little less than Q1, but y-o-y the company has clocked 5 percent growth. At the moment, the company's order book is at Rs 12,860 crore. But Sood hopes to close the year with an order book of Rs 15,000 crore plus. Below is the verbatim transcript of Praveen Sood's interview on CNBC-TV18 Q: Revenues have come in line with estimates but there is still a lot of pressure on your margins would that be the right call?
A: There has been pressure on the margins but in the construction industry it is very difficult to capture margin on a quarter to quarter basis because lot many adjustments take place on the CPC level, so in our notes you will see that we have clearly said that maintaining margins quarter to quarter basis is impossible in this industry so margins should be seen on an yearly basis. Having said that we are hopeful that we will keep margins in the double digit even for this year and even for six months if you take the average it is about 14 percent vis-à-vis for the quarter it is around 11 percent.
Turnover wise I think we have shown some growth. The monsoon season is always dull and that is why the quarter-to-quarter results are little lower as compared to the previous quarter, but on year-on-year basis we have achieved 5 percent growth.
On the cost side, we have been able to bring down fixed cost, employee cost and other expenses, which is helping in keeping margins intact. Going forward, I think when we improve turnover in the better season I think this will help to improve the margins as well as the profitability of the company. Q: Your order book is Rs 12,860 crore, but are you seeing any additions this quarter or are things still too quite?
A: This is sufficient to take us through for next two-three years, but as we intend to grow we are looking for fresh orders to come in. We are sitting on currently three L1 positions, hopefully by the end of this quarter at least two of them will get materialized and we will be back to Rs 15,000 crore plus order book. We are working towards that. Q: You did make a profit because of that big other income that you clocked in this quarter of around Rs 112 crore, without that you would still be in the red. Can you then tell us when do you expect an operational turnaround for the company?
A: Operationally, we are into profit. It is basically the interest cost which is causing us to go into losses. At the operating level we have always had double digit margins all the time which we hope to continue in the near future as well. It was the interest dues which is always causing us discomfort and that is mainly because we owe a large amount of funds towards the PSUs with whom we work. Lot of claims are under litigation or in arbitration which we are not getting paid and we are paying interest on that. The accounting standards make us charge interest every quarter on those dues.
That is why we are at loss. So we have to make sure that we realise the claims as early as possible and also demonetize some of our assets which will give us some flow of money which can help us to reduce the debt level and everything is good for us.