 "HCC is first to get debt relief under RBI's S4A scheme")
Shares of Hindustan Construction Company (HCC) rallied 15 per cent to Rs 45.62 on the BSE in Tuesday's intraday trade, amid heavy volumes, as Elara Capital initiated coverage on the infrastructure stock with over 50 per cent upside.
The domestic brokerage firm initiated coverage on HCC stock with a 'Buy' rating and a target price of Rs 63, implying 53 per cent upside from current levels.
Given past experiences and large opportunity landscape, the brokerage firm said it remains hopeful of a turnaround in financials from FY25 and further strengthening from FY26.
Analysts at the brokerage expect a standalone revenue and Ebitda CAGR of 20 per cent each during FY24-27E with earnings CAGR at 50 per cent, due to lower interest cost.
Besides, the senior management leadership team has been strengthened to drive the next leg of growth and promoter stake has sustained at ~18.6 per cent post rights issue (Rs 350 crore for growth capital), which bodes well for the company.
The analysts assign Rs 42 to core construction business at 13x avg FY26-27E P/E (at a 10 per cent discount to peer average); they value the wholly-owned subsidiaries, HCC Infrastructure (HICL) and Steiner AG, at Rs 10 based on equity invested; awards in favor of HCC are valued at Rs 9; and a 49 per cent stake in PRPL is valued at Rs 2 based on third-party valuation.
Recent credit ratings upgrade, Elara Capital said, and removal of restrictions on bank guarantee limits allow HCC to bid for new contracts. It is in L1 position (lowest bidder) on Rs 4500-crore orders, bids under evaluation of Rs 10,400 crore, and pipeline of Rs 46,400 crore across power, hydro, roads, nuclear and transportation.
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Analysts expect Rs 9,000-crore inflows in FY25E vs guidance of Rs 10,000 crore, increasing by 15 per cent per annum for the next two years. Partnerships with PE investors would also help the firm bid for long-term PPP projects, leading to less strain on the balance sheet, the brokerage firm said.
At 10:33 AM, HCC was trading 11 per cent higher at Rs 44.30, as compared to 0.26 per cent gain in the BSE Sensex. The average trading volume on the counter jumped over 1.5 times with a combined 118.29 million equity shares, representing 7 per cent of total equity of HCC, having changed hands on the NSE and BSE till the time of writing of this report.
The stock had hit a 52-week high of Rs 46 on February 2, 2024. It had touched a record high of Rs 120.10 on January 2, 2008.
HCC on the business development front in Q4FY24 investor presentation said that the company has been the lowest bidder for Rs 4,500 crore worth of projects, for which it can expect letter of award (LOA) to be issued very soon.
The company further said its bid pipeline is very strong Rs. 10,400 crore worth of bids are under evaluation and additionally, almost Rs 46,000 crore, of the project have already been identified for bidding purposes, which will be fuelling the company’s growth going forward, it said.
HCC is engaged in the engineering and construction of large infrastructure projects. The company's core competencies in the areas of design, engineering and execution are focused on complex projects of national importance in the areas of transportation, power, marine, water and industrial.
HCC's contribution to India's infrastructure landscape includes 26 per cent of India's hydropower capacity, over 60 per cent of India’s nuclear power generation capacity, 4,036 lane km of roads and expressways, 395 bridges and 360 km of complex tunnelling.
