In the engineering and construction business, technical expertise and size of the balance sheet play a key role in winning projects, but building a strong business depends on order execution and staying on top of the capital-intensive nature of the business. Hindustan Construction Co. Ltd (HCC) is attempting to do just that, raising capital by selling some assets and tying up with firms to expand business size. It will help it derisk its portfolio, even as it steps up revenue growth.
It entered the road and transportation business in 2007, attracted by its potential owing to a shift in this sector to public-private partnerships and build-operate-transfer (BOT) mechanisms. HCC runs this business through its subsidiary, HCC Infrastructure Ltd (HIL), and has six BOT road projects worth Rs 5,500 crore, while HCC’s overall order book is around Rs 19,000 crore. The National Highways Authority of India is expected to invite bids to build 11,854 km of roads and highways in the next 12 months. Instead of bidding for these projects alone, HIL has tied up with Egypt’s Orascom Construction Industries (OCI), which has a strong presence in emerging markets such as West Asia, Africa and Europe.
HIL will have to cough up around Rs 1,500 crore towards equity contributions in its existing orders. The OCI tie-up, therefore, derisks HIL’s funding exposure to these projects. It seems appropriate, given that its ability to leverage the group balance sheet is low. As on 31 March, HCC had outstanding loans of around Rs 2,500 crore and its debt-equity ratio was around 1.7.
HCC’s fund position will get some relief from its divestment of a 74% stake in a business park it is building. Of the total enterprise value of Rs 775 crore, it will get net cash of around Rs 293 crore, which will be used to repay loans. Around Rs1,000 crore in dues is stuck with various government organizations, weighing down HCC’s working capital cycle. Focus on receivables’ collections could trim this figure. HCC is also proposing to raise capital through its subsidiaries. This will allow it to raise funds without diluting the parent firm’s equity capital and also unlock value for shareholders.
crackcrack
| Company Name | CMP |
|---|---|
| Larsen & Toubro | 3509.90 |
| Rail Vikas Nigam | 379.20 |
| NCC | 245.70 |
| KEC International | 967.40 |
| Kalpataru Projects | 1168.75 |
| View more.. | |
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Funds ranking in screeners: Performance Consistency and Quality are two parameters used for ranking funds for SIP. The ranking as follows GG, GO, GR, OG, OO, OR, RG, RO and RR.
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The third tag Upside Potential is not relevant for SIP. It is relevant for lumpsum investments in Mutual Funds.
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