Credit Analysis of Hindustan
 Construction Company Limited
                                                     By,
      ...
Introduction
• Hindustan Construction Company Limited (HCC) is into
  engineering construction, both in India and the rest...
Introduction (Contd.)
• Past projects include the construction of 175
  road bridges which have a combined length of
  aro...
Verticals




            4
Sales & Order Booking




As on September 30th 2009 Orderbook of Rs. 15,542 Crores

                                      ...
Revenue Generation




                     6
Current Orderbook Position
• L1 in Projects worth Rs. 963 Crores.
• Bids under active evaluation worth Rs. 15000
  Crores....
Latest Results




                 8
Latest Results of Lavasa




                           9
Profitability Ratios

      Ratios            March'07   March'08   March'09




 Operating Profit
                       ...
Leverage & Coverage Ratios
        Ratios            March'07   March'08   March'09



  Total debt/equity       1.810238 ...
Liquidity Ratios

   Ratios       March'07   March'08   March'09


Current Ratio   1.720113   1.688414   1.564461


Quick ...
Details of Public Funding
• During FY06E, the company had made a
  combined offering of Global Depository Shares
  (GDS) &...
Debentures
Security                                                Redemption
           Rate of Interest   Issued Date   ...
Z Score
• The Z-Score was developed in 1968 by Dr. Edward I. Altman, Ph.D.,
  a financial economist and professor at New Y...
Five Business Ratios
• Z1 = Working Capital / Total Assets
• Z2 = Retained Earnings / Total Assets
• Z3 = EBIT / Total Ass...
Z-Score
                           March'07             March'08          March'09
    Working Capital               2,306...
Interpretations
        Score                            Interpretation
Z-Score Above            The company is safe based...
Conclusion
• Seeing the
  – The Z-Score value & the various ratios


 We would not be Investing in the
       Bond Issue o...
20
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Credit Analysis Of HCC

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Credit Analysis Of HCC

  1. 1. Credit Analysis of Hindustan Construction Company Limited By, Shishir Trivedi (1028) Srivathsa N Chakravarthy (1029) Subrata Chakraborty (1030) Indian Institute of Capital Markets, Navi Mumbai (http://www.utiicm.com) 1
  2. 2. Introduction • Hindustan Construction Company Limited (HCC) is into engineering construction, both in India and the rest of the world. • Seth Walchand Hirachand founded the company and it was incorporated in January 27th of the year 1926. • HCC has been entrusted with the construction of high value projects across segments like transportation, power, marine projects, oil and gas pipeline constructions, irrigation and water supply, utilities and urban infrastructure. • In Power Generation, HCC have constructed Hydroelectric, Nuclear, Thermal Gas and Diesel based Power Projects. In the field of Water Supply and Irrigation, also constructed major dams, barrages, aqueducts and tunnels. • In Transportation, the company concentrates road and rail bridges, expressways & roads and marine construction. 2
  3. 3. Introduction (Contd.) • Past projects include the construction of 175 road bridges which have a combined length of around 46,000 km • Bandra-Worli Sea Link - 4.7 km stretch is the country’s first sea link, has four lanes cuts travel time to 10 minutes from at least 45 minutes earlier. • Lavasa is free India's first hill city being developed by HCC. HCC holds 60% stake in the Subsidiary Lavasa Pvt. Ltd. 3
  4. 4. Verticals 4
  5. 5. Sales & Order Booking As on September 30th 2009 Orderbook of Rs. 15,542 Crores 5
  6. 6. Revenue Generation 6
  7. 7. Current Orderbook Position • L1 in Projects worth Rs. 963 Crores. • Bids under active evaluation worth Rs. 15000 Crores. • Major Projects in Pipeline worth over Rs. 9000 Crores. 7
  8. 8. Latest Results 8
  9. 9. Latest Results of Lavasa 9
  10. 10. Profitability Ratios Ratios March'07 March'08 March'09 Operating Profit 10.84% 13.03% 13.93% Margin (OPM) (%) Return on Capital 8.32% 11.87% 12.39% Employed (ROCE) (%) Return on Net Worth 4.07% 10.83% 12.47% (ROE) (%) 10
  11. 11. Leverage & Coverage Ratios Ratios March'07 March'08 March'09 Total debt/equity 1.810238 1.950232 2.423217 Asset Turnover Ratio 0.747429 0.832118 0.757932 Asset Coverage Ratio 0.578591 0.553213 0.505909 Interest Coverage Ratio 4.187833 2.654681 2.329074 11
  12. 12. Liquidity Ratios Ratios March'07 March'08 March'09 Current Ratio 1.720113 1.688414 1.564461 Quick Ratio 0.164089 0.168701 0.073269 Cash Ratio 0.155414 0.164695 0.069425 12
  13. 13. Details of Public Funding • During FY06E, the company had made a combined offering of Global Depository Shares (GDS) & Foreign Currency Convertible Bonds (FCCB) for an Aggregate sum of $200 Million. • As on March 31st 2009, there are 1,40,146 GDS outstanding & represented an equal number of underlying equity shares. • During the year the company allotted 1000 11.10% Secured Redeemable Non-Convertible Debentures of Rs. 10 Lakh each aggregating to Rs. 100 Crore to LIC of India on Private Placement Basis. 13
  14. 14. Debentures Security Redemption Rate of Interest Issued Date Tenure Credit Rating Type Date CARE AA- NCD 10.00% 25-Oct-2002 7 Years 25-Oct-2009 CRISIL AAA NCD 7.50% 28-Sep-2004 10 Years 28-Sep-2014 CARE AA NCD 11.10% 11-Aug-2008 7 Years 11-Aug-2015 CARE AA Redemption in 1st Year – 9.00% 3 annual equal p.a. instalments on NCD 2nd – 5th Year – 20-Nov-2006 5 years CARE AA+ 07.09.2009, G-sec + 175bps 07.09.2010, annual reset 07.09.2011 NCD 9.50% 20-Nov-2006 5 Years 20-Nov-2011 CARE AA+ 14
  15. 15. Z Score • The Z-Score was developed in 1968 by Dr. Edward I. Altman, Ph.D., a financial economist and professor at New York University's Stern School of Business. • The Z-Score formula for Predicting Bankruptcy of Edward Altman is a multivariate formula for a measurement of the financial health of a company and a powerful diagnostic tool that forecasts the probability of a company entering bankruptcy within a 2 year period. • Studies measuring the effectiveness of the Z-Score have shown the model is often accurate in predicting bankruptcy (72%-80% reliability). • The Z-Score bankruptcy predictor combines five common business ratios, using a weighting system calculated by Altman to determine the likelihood of a company going bankrupt. • It was derived based on data from manufacturing firms, but has since proven to be effective as well (with some modifications) in determining the risk a service firm will go bankrupt. 15
  16. 16. Five Business Ratios • Z1 = Working Capital / Total Assets • Z2 = Retained Earnings / Total Assets • Z3 = EBIT / Total Assets • Z4 = Market Value of Equity / Book Value of Total Liabilities • Z5 = Net Sales / Total Assets • Z = (1.2*Z1)+(1.4*Z2)+(3.3*Z3)+ (0.6*Z4)+(0.999*Z5) 16
  17. 17. Z-Score March'07 March'08 March'09 Working Capital 2,306.22 2,710.05 3,467.38 Total Assets 3,203.65 3,730.65 4,642.00 Z1 0.719873 0.726428 0.746958 Retained Earnings 111.51 207.95 279.90 Total Assets 3,203.65 3,730.65 4,642.00 Z2 0.034807 0.055741 0.060297 EBIT 179.86 308.41 375.05 Total Assets 3,203.65 3,730.65 4,642.00 Z3 0.056142 0.082669 0.080795 Market Value of Equities 3300 3500 3900 Book Value of Total 2,442.67 2,908.84 3,889.48 Liabilities Z4 1.350981 1.203229 1.002705 Sales 2,394.50 3,104.34 3,518.32 Total Assets 3,203.65 3,730.65 4,642.00 Z5 0.747429 0.832118 0.757932 Z-Score 2.655116 2.775783 2.606186 17
  18. 18. Interpretations Score Interpretation Z-Score Above The company is safe based on these financial 3.00 figures only. Z-Score On Alert. This zone is an area where one between 2.70 should exercise caution. to 2.99 Z-Score Good chances of the company going bankrupt Between 1.80 within 2 years of operations from the date of to 2.69 financial figures given. Z-Score Below Probability of Financial embarrassment is very 1.80 high. *Higher Z-Score is Desirable. 18
  19. 19. Conclusion • Seeing the – The Z-Score value & the various ratios We would not be Investing in the Bond Issue of HCC 19
  20. 20. 20

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