The opening of the iconic Bandra-Worli sea link in 2009 was a remarkable achievement and a beautiful sight. But, Ajit Gulabchand, Chairman and MD, HCC, though, would have had other things on his mind. Loans for instance, which he had piled on – more than 10 times in the preceding five years – had totalled to Rs 4,000 crores. Today, that outstanding has doubled to over Rs 8,100 crores. HCC’s bankers are now vying for blood – and their money! The company has to sell what it can.
Why does HCC feature here? Everything that can go wrong with an infrastructure company is playing out at HCC. Not only cost overruns and delays in claim settlements, an unrelenting Environment Ministry too has not yet provided any respite to the company’s dream project at Lavasa. There are public road projects which have not been reimbursed. A weak economic environment, slower rate of order booking and higher interest costs (at 12-13 per cent) have further dealt multiple blows.
Where does HCC go from here? Sale of assets is now imminent. The company has said it will chase to recover outstanding payments especially Rs 300 crores from the National Highways Authority of India and NHPC Ltd. Nevertheless, this ship would take substantial time and effort to turn around. The impact of debt servicing is at its highest levels in the last 10 years – at 88 per cent of operating income (9MFY12) as compared to an average of 30 per cent seen between FY02-07.
What should you do? The company has guided positive operating profit only by Q1FY14. Could be a tough call if the operating environment does not improve. Sell.