Buy Hindustan Construction Company; target of Rs 55: Edelweiss

Edelweiss' research report on Hindustan Construction Company

Claim recognition of INR 0.8bn boosted top line to INR9.3bn (estimate INR10.8bn). Adjusting for claims, execution dipped 9% YoY. This was due to slowdown in work on projects in Jammu & Kashmir (27% of order book) as a result of ongoing agitation in the state. Adjusted for claims, EBITDA margin stood at a healthy 16%. Order backlog, as at Q1FY18 end, stood at INR 204bn, flat QoQ. In addition, HCC is L1 in INR 28bn contracts.

Outlook

We remain positive on HCC due to: a) likely decline in debt via claim receipt and b) its healthy order book. The trajectory of revenue traction and receipt of claims money will determine stock performance going ahead. We maintain ‘BUY’ with SOTP-based target price of INR 55—INR 27/share from EPC business (valued at 18x FY19E P/E), INR 18/share from BOT projects (DCF valuation) and balance from Lavasa.