PINC recommends 'hold' on HCC

MUMBAI: PINC Research has recommended a ���hold��� on Hindustan Construction Company Ltd (HCC) with a price target of Rs 52. In its result update n the company it has said that while the results are better than expected on OPM front, the same are below PINCs expected PBT numbers due to the higher capital charges.

The brokerage has assigned a lower PE of 5x (vs 6x earlier) to FY10E standalone earnings citing high leverage (FY09E D:E 2.3x) and rising capital charges.

In a note to clients it said that HCC has posted a modest 9% growth in sales to Rs 8.2bn in Q3FY09. Lower construction expenses (-21% YoY at Rs2.5bn) offset the rise in construction material cost (+43%YoY to Rs3.3bn). Operating margins (OPM) remained stable at 12.9%. However higher interest costs at Rs573mn (+40% YoY) led to PBT of Rs211mn (-36%YoY). Tax writebacks of Rs89.6mn helped HCC post a modest fall of 7% in net profit to Rs232mn despite an exchange loss of Rs68.1mn on restatement of foreign currency liabilities. HCC received two irrigation orders aggregating Rs16.9bn in AP. It also bagged a civil works order worth Rs3.6bn from Lanco Infra Tech for Teesta Hydro Power Project, Sikkim in Q3FY09.

"Lower topline growth in Q3FY09 and rising capital charges remain a concern. We expect HCC to post an EPS of Rs 2.7 in FY09 and Rs3.3 in FY10. Also, we revise Lavasa NAV downwards to Rs46/sh (vs Rs58/sh earlier) citing a longer timeframe for execution," PINC adds.