Outperform on HCC, target Rs 40: IDFC Institutional Securities

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Published: August 19, 2015 12:10:31 AM

Maintain ‘outperform’ on HCC with a revised price target of R40 a share. Our price revision reflects impact of earnings downgrade and reduced valuation for Lavasa.

Maintain ‘outperform’ on HCC with a revised price target of Rs 40 a share. Our price revision reflects impact of earnings downgrade and reduced valuation for Lavasa.

HCC continues to focus on recovery of its overdue claims and sale of assets in order to reduce debt.

HCC has signed definitive agreement to sell its Nirmal BOT and Dhule-Palesner projects for a combined value of Rs 270 crore and has also signed term sheet to sell its Baharampore-Farakka project. The IPO of Lavasa, if it goes through, will further reduce funding pressure on the parent. We have lowered FY16e/FY17e standalone earnings by 5.2% and 5.4%, respectively.

HCC’s Q1FY16 standalone PAT came in at Rs 8 crore above our estimate of Rs 6.4 crore due to higher than expected other income.

Net sales declined 8.1% y-o-y to Rs 910 crore, led by lower execution and also due to lower claims awarded in its favor vis-à-vis that in Q1FY15. Execution in two of the company’s key projects — Kishanganga and NH-34 — was adversely impacted during the quarter. Kishanganga project was impacted by local disturbances while the NH-34 project was impacted by land acquisition difficulties.

As a result, Ebitda declined 19.3% y-o-y to Rs 160 crore and Ebitda margin declined 250 bps y-o-y to 18.1%. Interest expenses grew 7.3% y-o-y to Rs 170 crore with gross debt declining to Rs 4,800 crore from Rs 5,000 crore in March 2015.

This decline was due to debt repayment from proceeds of the company’s Rs 400-crore QIP. Order Inflow grew 12% y-o-y to ~Rs 620 crore and order backlog remained flat y-o-y at Rs 13,900 crore. HCC has so far received Rs 2,370 crore of arbitration claims in its favour of which cash collected (since going to CDR) is ~Rs 400 crore.

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