Quantum of fine on Lavasa will decide downside on HCC

The environment ministry yesterday said it could consider approving Hindustan Construction Company's Lavasa project on conditions that included a penalty payment and the setting up of a restoration fund. The ministry has said that HCC's Lavasa unit's construction activity is unauthorised and environmentally damaging. The ministry has asked Lavasa to maintain status quo and avoid further construction.

CNBC-TV18's Managing Editor Udayan Mukherjee says that HCC has already been hit quite a bit and is unsure of more downside in the stock. He says the most studied reaction to the situation would be that it is not as dire as it is with the Adarsh Housing scam and that it is not a dead duck. Mukherjee feels that the takeaway for the market is that the environment ministry may probably let Lavasa pass. "The reaction to the stock ofcourse will be partly based on what eventually comes out as the size and the quantum of the penalty which Hindustan Construction is made to pay and also this talk of the fund and the size of the fund which it has made to set up," Mukherjee said. He said the element of cash outflow in terms of fines or penalties will determine if the stock has more downside from current levels. The market may heave a mild sigh of relief on the fact that construction at Lavasa might go through eventually with penalties imposed and hence not a complete stop work or a demolition situation like Adarsh, which might stem the downside. "I think Rs 38.40 is probably a base right now after the kind of damage that has happened already. If the eventual size of the penalty etc turns out to be humongous then there could be downside but otherwise I think most of it probably is in the price."