Accumulate HCC; target of Rs 19.5: Aditya Birla Money

Aditya Birla Money is bullish on Hindustan Construction Company (HCC) and has recommended accumulate rating on the stock with a target of Rs 19.5 in its February 5, 2013 research report.
 
“Hindustan Construction Company’s sales increased surprisingly by 7.2% y-o-y to ~Rs10.2bn above our and street expectations. The company’s order book stands at~ Rs146.2bn (30% hydro, 36% transport, 21% water and 13% nuclear and others), with a strong order inflow of ~Rs20.5bn. The order inflow outlook in the near term is improving; however medium term it looks bleak. The company’s execution is likely to pick up in FY14 as transportation projects share in the overall order book pie has increased; however we maintain our top-line estimates for the FY13 since some projects are facing execution issues.”

“During 3QFY13, the company’s operating margin contracted by 121bps y-o-y and 226bps q-o-q to 10.7%, while the operating profits declined by ~4% YoY and QoQ to Rs1,084mn mainly on the back of higher construction expenses and declining share of hydro projects. We expect the operating margin to be at ~10% levels as the share of high margin hydro projects is coming down. •Company reported a net loss of Rs386mn during 3QFY13 lower then our expectations mainly due to better top-line growth and lower interest costs. Interest costs were down 1.7% YoY at Rs1,397mn mainly on the back of corporate debt restructuring. Depreciation costs however increased by 7.6% YoY and 11.5% QoQ to Rs444mn.” 

“We also maintain our operating margin estimates of 10% since we believe as higher share of transportation projects come under execution more clarity will emerge. On the back of lower than anticipated interest costs we revise our loss estimates downwards to Rs1,530 mn for FY13 (earlier Rs1,797mn). Infrastructure segment is still under severe pressure and we do not foresee the situation improving in the near term. Post, the recent RBI rate cuts interest costs for infrastructure companies are likely to decline marginally. HCC’s balance sheet is highly leveraged and with low visibility on fund raising, high debt and interest cost burden are likely to be an overhang on the stock and hence we maintain our “accumulate” rating on the stock. At the CMP, the stock trades at 1.1xFY14E P/B and 14.6x FY14E EV/EBITDA,” says Aditya Birla Money research report.

Non-Institutions holding more than 90% in Indian cos

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