HCC Fundamental Buy Tgt 160

Recommendation-----Hold Target-------160

Smooth Road Ahead:
Hindustan Construction Company (HCC) has bagged two orders worth Rs 299.36 crore from
Hindalco Industries for various infrastructure related works at Aditya Aluminium Smelter
Project in Orissa.. The project is to be completed in 19 months. The second order worth Rs 199
crore involves complete civil and structural work involving site grading, civil and architectural
work at the same site. The second project would be completed in 15 months.
Good infrastructure is a must for any country to help its economy grow. This is more important
for the developing countries like India. Improving and expanding the network of roads and
highways, construction of bridges, hydel projects, development of new ports, pipelines etc. are
some of the areas which offer tremendous opportunities for development and growth of
Construction Industry.
As flow of new orders in the road segment gathers pace, prospects of construction companies
are likely to improve. HCC's order book now stands at Rs 18,500 crore, which will provide
good revenues for the next three-four years. Importantly, the company now has six BoT
projects worth of Rs 5,500 crore, which should help increase the share of revenue from the
transport segment, currently at 28 per cent.

Latest Result:
The December 2009 Qtr result has registered 10% growth in sales (excluding JV sales) for the
quarter ended Dec 2009, but its net profit declined by 36% to Rs 14.76 crore. On a flat
operating margin the company gained by higher forex gain, lower interest tax has put up 178%
growth in PBT before profit/ loss on JV & EO to Rs 39.49 crore. The fall in net profit could be
attributed to loss on JV as well as the base effect. The net profit of corresponding previous
period was inflated by write back of excess provision of income tax amounting Rs 8.96 crore
compared to a provision of Rs 9.23 crore in Q3FY10. But for this the net profit would have
seen a growth.

About The Company:
Hindustan Construction Company (HCC) is one of the largest private sector construction
companies in India and the foremost in infrastructure building. It is in the business of executing
large infrastructure projects, and it has built expertise to develop projects across the
infrastructure spectrum. Its has expertise in water supply and irrigation, marine works, piling
works, nuclear projects, hydel projects, transportation, earthwoars /embarkments, thermal
projects, industrial structures, environmental engineering and even miscellaneous works. In
broader sense, it is actively focused in Road (including bridges) and Power (Nuclear, Thermal
and Hydel power). Both of these segments as well as others have solid growth prospects.

Price Triggers:
• Healthy Order Book
• Economy growth, Budget impact positive for the Construction Industry.
• Foray into Nuclear power ,Metals sector
• Consistent revenues from build -operate –transfer(BOT) projects.

Risks:
• HCC December Qtr revenue falls on the account of slow execution of the projects
mainly in Andhra Pradesh which accounts for about 25 per cent of the company's
order book.
• Revenue generation comes mostly from Power sector in Dec Qtr thus any delay in
these projects can effect the OPM.

Fundamental Valuation and Investment Case:
Sales has been increasing with CAGR of 30% for the past 5 year. HCC's revenue would grow
at CAGR of 26 percent over financial year 2010-11 and will be able to sustain margin at higher
level. We recommend to hold the stock for the target of 160.
Fundamental Valuation

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