Waiting for receivables along with debt | Value Research Hindustan Construction was one of the top-performers of its sector. But has its aggression cost it too much…
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Waiting for receivables along with debt

Hindustan Construction was one of the top-performers of its sector. But has its aggression cost it too much…

Warren Buffett once remarked, “It's only when the tide goes out that you learn who's been swimming naked”. That statement could perfectly apply to Hindustan Construction Company (HCC).

HCC once had it all. Landmark projects that involved building half of the country's nuclear power generation capacity and the iconic Bandra-Worli Sealink. In many circles, HCC was thought of as another L&T in the making. But then HCC got aggressive -- a little too aggressive.

With the era of 9 per cent GDP growth rate now gone, HCC is left straddled with a debt of over Rs 4,600 crore that will not go away so easily. Interest payments on those loans are more than what the company makes before depreciation (FY13). HCC it appears is in the pits for some time to come. FIIs have reduced their stake in the company from 22.96 per cent a year ago to 17.74 per cent.

Should you follow the FII route?
Debt in the books went up by over 53 per cent last year -- from Rs 5,163 crore in FY12 to Rs 7,910 crore in FY13. That is a D/E ratio of 3.9x. HCC entered into a CDR scheme last financial. And then there are old receivables. According to its 2013 Annual Report, HCC has receivables amounting to Rs 2,500 crore for its various highway projects. It has filed a claim for Rs 600 crore for the Bandra-Worli Sealink project. That is also due.
With the economy showing no sign of improvement or increased public investment, revenue which was down 3.9 per cent in FY13 could remain muted this year too. HCC expects orders worth Rs 5,000 crore in FY14, that could possibly be a tall order given the state of the economy and the impending elections. Without robust revenue growth, debt will not come down and there is still no knowing when the receivables will be realised. Given the above negatives, existing investors should exit.




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