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Saturday, February 4, 2012

HCC - Stock Report and 3QFY12 Result Update

Stock report based on 3Q FY12 result update of HCC. Checkout if you should buy stocks of HCC or not.
For 3QFY2012, HCC has reported poor set of results with, revenue and EBITDAM coming in line with stock analyst's estimates but earnings have plunged on account of expected future losses and cost revisions to the tune of Rs.166 cr. These provisions can not be exceptional in nature, as said by the company and pertain to normal course of business.

The total outstanding order book stands at Rs.16,240 cr (excluding L1 orders of Rs. 1,574 cr) with order inflow of ~ Rs.840 cr in the quarter. There are concerns like slowdown in order inflow, high debt and stretched working capital which does not excites on stock.

Provisions leading to huge losses:
On top line HCC’s revenues declined by 6.2% yoy to Rs. 946.0cr (Rs.1,009cr) against street's estimated Rs. 982.0 cr 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 street's estimated of 11.9%.

HCC has reported a loss of Rs. 130.4 cr vs. profit of Rs. 7.9cr in 3QFY11, against our estimate of loss of Rs. 25.5 cr owing to decline in revenue, EBITDA margin and provisioning of Rs. 166 cr. Interest cost came at Rs. 104.3cr, a decline of 39.4%/2.9% on yoy/qoq basis.

Outlook and valuation:
As per stock broker's research reports, they value on 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. The fair value of stock implies an upside of at least 30% from current levels, but referring to concerns mentioned above, it is better to not to invest any fresh money in HCC stock.

L&T, Sadbhav Engineering and IVRCL infrastructure look like better stocks to buy than HCC.

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