BUY
CMP: Rs168
Hindustan Construction Company Ltd (HCC) expected to witness a CAGR of 42.2% between FY06 and FY08 backed by a burgeoning order book position, which leaped by 79.7% yoy in FY06 and is presently at Rs91.4bn, 4.6x its FY06 turnover. The average execution period stands at 3.5 years. The order intake at 2.9x its execution in FY06 has been the highest in the last five years, giving an indication of higher growth to come. HCC’s track record and proven capabilities leaves little room for concerns on the execution front. Further, HCC’s strategy of executing fewer contracts (25 odd currently) and focusing on large ticket orders will help timely completion and
leaves resources in hand for further scale up.
We expect the Lavasa project to add significantly to HCC’s valuations post
completion of phase-I, expected by March 2007. We value HCC’s equity holding of 60.5% at Rs24.1 per share (18.9% of CMP), based on the market price of the recent sale of land (Rs4mn per acre), post a 25% discount. As part of its other real estate plans, the company has development plans for its nine acres land (TDR at Rs400mn) in Vikhroli (W), Mumbai and is scouting for land bank to acquire 1,000 acres by March 2007.
HCC is awarded its maiden annuity and toll based projects in roads for Rs2,720mn and Rs280mn respectively, helping it test waters in the BOT format. The company
is prepared to pitch for more BOTs in future. HCC is also planning a foray into the EPC space in the hydropower segment, which commands high margins. It has received intimation for 1,200 MW valued at Rs43.1bn; HCC’s share being Rs19.4bn.