Analysts' Picks: HCC

HSBC Global reiterates ���underweight��� rating on Hindustan Construction Company (HCC)

RESEARCH: HSBC

RATING: UNDERWEIGHT

CMP: Rs 40

HSBC Global has reiterated its ���underweight��� rating on Hindustan Construction Company (HCC). It has factored in a dividend payment of Re 1 per share, implying a dividend yield of 2.2%. Thus, the total potential return on investment in shares over the next year is -1 .8%. HSBC considers the share price to be volatile. For Indian stocks, HSBC considers the average cost of equity to be 11%. A volatile Indian stock with a potential total one-year return of 10 percentage points on either side of 11%, i.e. 1-21 %, merits a ���neutral��� rating. As the potential total one-year return on HCC is less than 1%, HSBC reiterates its ���underweight��� rating on the stock. A key upside catalyst for the stock is sharp increase in order inflows and reduction in leverage, resulting in lower interest costs. A sharp drop in execution volumes along with demand slowdown remain key downside risks to HSBC���s valuation.