Hold HCC; target of Rs 19.5: Aditya Birla Money

Aditya Birla Money has recommended hold rating on Hindustan Construction Company (HCC) with a target of Rs 19.5 in its November 2, 2012 research report.

“Hindustan Construction Company’s sales increased marginally by 4% y-o-y to Rs8,657mn in line with our expectations. The company’s order book stands at~ Rs150.1bn (32% hydro, 33% transport, 21% water and 14% nuclear and others), with an strong order inflow of Rs19,070 mn. The order inflow outlook remains bleak as industrial capex has slowed down and also many projects are facing execution issues on account of which top-line growth is likely to be sluggish for FY13.”
“HCC has posted good set of results on the top-line as well as operating front; Top-line is likely to be sluggish during FY13 due to execution issues and lower capex investments; however operating performance has improved and is likely to stabilize on account of various cost control measures. Profitability has been hit badly on account of higher debt and interest costs. Despite CDR package and control in capex, debt and interest costs are showing no signs of stabilization and are increasing which is likely to take a toll in its profitability. Factoring in a) muted order inflows b) improvement in operating performance we maintain our top-line estimates and marginally increase our operating margin estimates (~20bps); however interest costs and debt levels are showing no signs of improvement and hence we revise interest costs upwards. Considering the above factors we revise our FY13 and FY 14 to loss of Rs1,797mn (previously loss of Rs1,856mn) and loss of Rs1,416mn (previously loss of Rs1,305mn) respectively.”
“Infrastructure segment has been under severe pressure and we not foresee the situation improving in the near term. HCC has witnessed muted top-line growth however operating margins are showing signs of stabilisation. The company’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 to and hence we maintain our “hold 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. Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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