Hindustan Construction (HCC) reported R2,060 crore profit in Q4FY15 (our estimate R4,740 crore loss), aided by settlement of R250 crore claims on certain projects. As per management, R780 crore claims were recognised in FY15 from which R270 crore cash was realised. While FY15 top line was up 2% y-o-y, claims recognition boosted reported Ebitda margin by 300bps y-o-y to 18.9%. The recent R400 crore QIP issue, claims settlement and asset sale are likely to help HCC in checking high leverage and interest costs. Maintain buy with a revised target price of R50.
The company has sold its stake in 2 BOT projects – Dhule-Palasner and Nirmal BOT – for total consideration of R268 crore. It recently also concluded a QIP issue of R400 crore, which was used to repay R200 crore debt. This is in line with its strategy to raise funds through asset monetisation to reduce debt. HCC has plans to raise R1,000 crore through sale of real estate and BOT assets. We believe the deleveraging exercise will significantly lower debt and provide comfort to investors.
We expect HCC’s debt/equity to fall to 2.7x in FY16 (3.6x as at FY15 end), as fund raising/asset sale lead to decline in debt levels. We believe claims settlement, fund raising in Lavasa along with asset sale can help reduce leverage. This will check interest costs and address investors’ concerns. We incorporate the recent fund raising and asset sale and arrive at our revised target price of R50 —R23/share from EPC business , R15/share from BOT projects and balance from Lavasa.
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