HCC - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, HCC's reported poor set of results with, revenue and EBITDAM coming in line with our and street estimates, however earnings plunged on account of provisions (expected future losses and cost revisions) to the tune of Rs.166cr. We believe these provisions are not exceptional in nature, as classified by the company and pertain to normal course of business. As of 3QFY2012, the total outstanding order book stands at Rs.16,240cr (excluding L1 orders of Rs.1,574cr) with order inflow of ~Rs.840cr in the quarter. Owing to concerns such as slowdown in order inflow, high debt and stretched working capital, we remain Neutral on the stock.

Provisions lead to huge loss: On the top-line front, HCC's revenues declined by 6.2% yoy to Rs.946.0cr (Rs.1,009cr) against our estimate of Rs.982.0cr due to slowdown in order inflow and execution bottlenecks. EBITDAM came in at 11.7% (12.6%), a dip of 90bp yoy and marginally lower than our estimate of 11.9%. On the earnings front, HCC reported a loss of Rs.130.4cr vs. profit of Rs.7.9cr in 3QFY11, against our estimate of loss of Rs.25.5cr owing to decline in revenue, EBITDA margin and provisioning of Rs.166cr. Interest cost came at Rs.104.3cr, a decline of 39.4%/2.9% on yoy/qoq basis.

Outlook and valuation: On the valuations front, at current levels, the stock trades at 32.8x PE and 1.0x P/BV on FY2013E on standalone basis. We have valued HCC on an SOTP basis with a fair value of Rs.32/share by assigning 6x FY2013E earnings (standalone). The company's real estate venture has been valued on NAV basis and its BOT assets have been valued on FCFE basis. Our fair value implies an upside of 51.2% 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, Sadbhav and IVRCL.

Source : Equity Bulls

Keywords