HCC reported a 6.3% year-over-year increase in net sales to Rs. 1,057.9 crore for the first quarter of fiscal year 2012, which was slightly below analyst estimates. Operating profit increased 9.7% to Rs. 137.9 crore due to a 40 basis point improvement in operating margins. However, net profit declined sharply by 89.9% to Rs. 2.9 crore due to higher interest costs and tax expenses. The company's order backlog stood at Rs. 17,007 crore excluding disputed orders, and it aims to win Rs. 5,000-6,000 crore in new orders for fiscal 2012. Analysts maintain a neutral rating
HCC reported a 6.3% year-over-year increase in net sales to Rs. 1,057.9 crore for the first quarter of fiscal year 2012, which was slightly below analyst estimates. Operating profit increased 9.7% to Rs. 137.9 crore due to a 40 basis point improvement in operating margins. However, net profit declined sharply by 89.9% to Rs. 2.9 crore due to higher interest costs and tax expenses. The company's order backlog stood at Rs. 17,007 crore excluding disputed orders, and it aims to win Rs. 5,000-6,000 crore in new orders for fiscal 2012. Analysts maintain a neutral rating
HCC reported a 6.3% year-over-year increase in net sales to Rs. 1,057.9 crore for the first quarter of fiscal year 2012, which was slightly below analyst estimates. Operating profit increased 9.7% to Rs. 137.9 crore due to a 40 basis point improvement in operating margins. However, net profit declined sharply by 89.9% to Rs. 2.9 crore due to higher interest costs and tax expenses. The company's order backlog stood at Rs. 17,007 crore excluding disputed orders, and it aims to win Rs. 5,000-6,000 crore in new orders for fiscal 2012. Analysts maintain a neutral rating
HCC reported a 6.3% year-over-year increase in net sales to Rs. 1,057.9 crore for the first quarter of fiscal year 2012, which was slightly below analyst estimates. Operating profit increased 9.7% to Rs. 137.9 crore due to a 40 basis point improvement in operating margins. However, net profit declined sharply by 89.9% to Rs. 2.9 crore due to higher interest costs and tax expenses. The company's order backlog stood at Rs. 17,007 crore excluding disputed orders, and it aims to win Rs. 5,000-6,000 crore in new orders for fiscal 2012. Analysts maintain a neutral rating
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online from Scribd
Download as pdf or txt
You are on page 1/ 12
1QFY2012 Result Update | Infrastructure
July 29, 2011
HCC Performance Highlights Y/E March (` cr) Net sales Operating profit Net profit Source: Company, Angel Research
Investment Period Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
For 1QFY2012, HCCs numbers came broadly in-line with our expectations. The total outstanding order book stands at `17,007cr (excluding Sawalkote and L1 orders of `1,940cr and `2,077cr, respectively). HCC Concessions is looking to dilute 14.5% stake to Xander Group for `240cr, valuing it at `1,650cr. We believe closure of the deal would certainly be positive for HCC, given it materializes. However, owing to concerns such as uncertainty on Lavasa, slowdown in order inflow, high debt and stretched working capital, we remain Neutral on the stock. Disappointment continues as expected: On the top-line front, HCC reported growth of mere 6.3% yoy to `1,057.9cr (`995.4cr) against our estimate of `1,110.0cr. EBITDAM came in at 13.0% (12.6%), an improvement of 40bp yoy and marginally ahead of our estimate of 12.7%. Depreciation and interest costs came in at `39.2cr and `93.3cr, respectively, and were in-line with our estimates. PAT declined by 89.9% yoy to `2.9cr (`28.3cr), against our estimate of a 73.8% decline. Poor performance on the bottom-line front was due to high interest cost and higher tax provisioning (53.3%). Outlook and valuation: On the valuations front, at current levels, the stock trades at 25.5x PE and 1.2x P/BV on FY2013E standalone basis. We have valued HCC on an SOTP basis with a fair value of `40/share by assigning 8x FY2013E earnings (standalone). The companys real estate venture has been valued on NAV basis and its BOT assets have been valued on DCF basis. Our fair value implies an upside of 31.4% from current levels, but we continue to maintain our Neutral recommendation on the stock, owing to concerns mentioned above. Further, in the infrastructure space, we believe there are better bets than HCC such as L&T and Sadbhav.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 39.9 12.0 23.8 24.4
Abs. (%) Sensex HCC
3m (4.9)
1yr 1.1
3yr 31.9 (33.7)
(13.9) (52.7)
Key financials (Standalone)
Y/E March (` cr) Net sales % chg Adj. net profit % chg EBITDA (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Source: Company, Angel Research;
Please refer to important disclosures at the end of this report
HCC |1QFY2012 Result Update
Exhibit 1: 1QFY2012 performance (Standalone)
Y/E March (` cr) Income from operations Total expenditure Operating profit OPM (%) Interest Depreciation Other income Nonrecurring items Profit before tax Tax PAT PAT (%) FDEPS (`) Source: Company, Angel Research
Actual Revenue (` cr) EBITDA margin (%) PAT (` cr) Source: Company, Angel Research
Estimates 1,110 12.7 7.4
Variation (%) (4.7) 30bp (61.2)
1,058 13.0 2.9
Sluggish performance on the revenue front
On the top-line front, HCC reported growth of mere 6.3% yoy to `1,057.9cr (`995.4cr), against our estimate of `1,110.0cr. As per management, the industry is facing strong headwinds which include slowdown in order activity caused by shortfall in investments in infrastructure sector, increase in commodity prices, delay in decision making process and a high interest rate scenario. Further, the management believes that delay in project implementation for HCC has been due to environment clearance and land acquisition problems. Against this backdrop, HCC has decided to focus on improving operational efficiencies by taking steps like cost optimization, reducing working capital and capex control by outsourcing.
Projects update For Dhule-Palasner project the scheduled COD is June 2012; however, management is confident of achieving completion couple of months before the scheduled completion date. The three BOT road projects in West Bengal are progressing well and are on schedule to achieve completion during JulyAugust 2013. As per management, HCC Concessions will contribute ~`300cr and ~`500cr to HCCs revenue in FY2013 and FY2014, respectively. On Lavasa, HCC is hopeful of receiving environmental clearance for phase 1 in August 2011.
July 29, 2011
HCC |1QFY2012 Result Update
Exhibit 3: Quarterly revenue trend shows slowdown on execution front
EBITDAM in line, earnings pulled down by higher interest and tax
EBITDAM came in at 13.0% (12.6%), an improvement of 40bp yoy and marginally ahead of our estimate of 12.7%. PAT declined by 89.9% yoy to `2.9cr (`28.3cr), against our estimate of a 73.8% decline. Depreciation and interest costs came in at `39.2cr and `93.3cr, respectively, and were in-line with our estimates. Poor performance on the bottom-line front was due to higher interest cost (as expected), higher tax provisioning (53.3%) and lower other income. The reason for high tax provisioning (53.3%) cited by the management was ~7% of interest cost (~`6.57cr) was disallowed (as per section 14A) as it relates to investments in tax free source of income and hence resulted in `2cr of extra tax burden. Going forward as well we believe that HCCs tax will be higher on account of this reason and have factored tax rate of 43.5% and 39.2% for FY2012 and FY2013 respectively.
HCCs order book, as of 1QFY2012, stood at `17,007cr (4.2x FY2011 revenue) excluding the disputed and L1 orders worth `1,940cr and `2,077cr, respectively with the company bagging orders worth ~`1,001cr during the quarter. HCC has removed the `1,940cr Sawalkote order from its order book during the quarter; however, we had not included the same for HCCs order book. The companys order book comprises hydro power (40%), water solutions (22%), transportation (22%) and nuclear and special (16%) projects. The company is L1 for contracts worth `2,077cr. For FY2012, management had given an order inflow guidance of ~`7,000cr at the beginning of the year; however, given the current slowdown in award activity across sectors (except road), the guidance has been scaled down to `5,000cr6,000cr. However, we continue to believe this target is aggressive and have factored order inflow of `4,408cr and `5,555cr for FY2012 and FY2013, respectively.
Order Inflow (` cr, LHS) Order Book growth (%, RHS)
Source: Company, Angel Research
1QFY12
Source: Company, Angel Research
HCC Concessions stake dilution A positive development
HCC Concessions is looking to dilute 14.5% stake to Xander Group for `240cr, which values it at ~`1,650cr. As per management, `212cr215cr will be received in a couple of weeks and the balance amount will be received later. We believe this is a positive development for HCC as it will reduce its burden to fund the road BOT projects; however, as the deal has not happened yet, we are not factoring the same in our numbers. Hence, we continue to value BOT projects on DCF basis, which is much below the claimed valuations via stake dilution.
July 29, 2011
HCC |1QFY2012 Result Update
Outlook and valuation
We believe that HCCs tax rate would be higher owing to reason mentioned above and hence our revised PAT estimates for FY2012 and FY2013 are `41cr (`49cr) and `72cr (`80cr) respectively.
Exhibit 8: Change in estimates
FY2012E Earlier estimates Revenue (` cr) EBITDA margin (%) PAT (` cr) Source: Company, Angel Research
On the valuations front, at current levels, the stock trades at 25.5x PE and 1.2x P/BV on FY2013E standalone basis. We have valued HCC on an SOTP basis, with a fair value of `40/share by assigning 8x FY2013E earnings (standalone). The companys real estate venture has been valued on NAV basis and its BOT assets have been valued on DCF basis. Our fair value implies an upside of 31.4% from current levels, but we continue to maintain our Neutral recommendation on the stock, as owing to concerns such as uncertainty on Lavasa, slowdown in order inflow, high debt and stretched working capital, we maintain our Neutral view on the stock. Further, in the infrastructure space, we believe there are better bets than HCC such as L&T and Sadbhav.
Exhibit 9: SOTP valuation summary
Business Segment Construction Value of Real Estate Road BOT Projects Badarpur Faridabad (HCC's share 100%) Nirmal Annuity Proj. (HCC's share 100%) Dhule Maharashtra (HCC's share 37%) Baharampore-Farrakha (HCC's share 100%) Farrakha to Raiganj (HCC's share 100%) Raiganj to Dalkhola (HCC's share 100%) Total Source: Company, Angel Research
Methodology P/E NAV Basis
Remarks 8.0x FY2013E earnings NAV Basis
`/share 10.1 23.4 1.5 0.9 0.1 1.5 1.5 1.0 40.0
NPV CoE -14%, Traffic and Toll increase 3% and 4% respectively NPV CoE -14%, Traffic and Toll increase 3% and 4% respectively NPV CoE -14%, Traffic and Toll increase 3% and 4% respectively NPV NPV NPV CoE -14%, Traffic & Toll increase 5% each CoE -14%, Traffic & Toll increase 5% each CoE -14%, Traffic & Toll increase 5% each
Exhibit 10: Key assumptions
` cr Order inflow Revenue Order backlog (Y/E) Order book-to-Sales ratio (x) Source: Company, Angel Research
Angel Forecast FY2012E FY2013E Source: Company, Angel Research
Bloomberg Consensus 0.9 1.3
Variation (%) 27.4 8.9
0.7 1.2
Recommendation rationale Fairly valued HCC registered muted top-line growth of 6.3% yoy for 1QFY2012, despite high order book-to-sales ratio (4.2x FY2011 revenue). Muted revenue performance
was due to slow-moving hydro projects and low contribution from AP projects, as expected. On the valuations front, we believe at current levels of 24.0x PE and 1.2x P/BV on FY2013E basis, the stock price factors in all upsides from its construction arm and real estate venture. Hence, we remain Neutral on the stock.
DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
HCC No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
List of Key Financial Ratios: Formulas and Calculation Examples Defined for Different Types of Profitability Ratios and the Other Most Important Financial Ratios
List of Key Financial Ratios: Formulas and Calculation Examples Defined for Different Types of Profitability Ratios and the Other Most Important Financial Ratios
