Financial Analysis HCC

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Financial Ratio analysis of HCC

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Financial Analysis HCC

  1. 1. HINDUSTAN CONSTRUCTION COMPANY LTD (HCC) Group 1 Kalpesh Agarwal PGPM508_01 Sivaram Gunavel PGPM508_12 Chetan Mahindra PGPM508_23 Manish Raj PGPM508_35 Jaspal Singh PGPM508_47 FINANCIAL STATEMENTS ANALYSIS
  2. 2. INTRODUCTION Introduction to Industry • The Indian Construction Industry is worth US $70 billion and will grow to US $120 billion by 2010 • It accounts for 6% of the GDP (Every Re.1 investment in the construction industry causes an Rs.0.80 increment in GDP as against Rs.0.20 and Rs.0.14 in the fields of agriculture and manufacturing industry, respectively) • Provides employment to 3.1 crore persons • The government has identified infrastructure as a priority sector to sustain the momentum of GDP growth Major Players: L&T, IVRCL , HCC, Gammon , Punj, Unitech Investment Goals Key Drivers behind growth • Booming Indian economy • Growing housing and commercial space requirement • Government thrust on infrastructure and project • Rising household income Investment Goals by 2010 US$22 billionTelecom US$15 to 17 billionCivil Aviation US$8 to 10 billionPorts US$25 to 30 billionRoads US$140 billionPower Investment Goals by 2010 US$22 billionTelecom US$15 to 17 billionCivil Aviation US$8 to 10 billionPorts US$25 to 30 billionRoads US$140 billionPower
  3. 3. INTRODUCTION About HCC • Established in 1926 by Seth Walchand Hirachand Doshi • HCC is an integrated group spanning construction, real estate and infrastructure development • It is one of the largest private sector construction company in India • HCC has been involved in construction of diverse projects ranging from power dams, highway and bridges, to marine structures • The top line of the company is expected to increase by 12% in 2008-09 and by 45% in 2009-10 • CAGR over past three financial stands at 24% and CAGR for order inflow stands at 16% Kudankulam Nuclear Reactor Vizag Cavern, AP
  4. 4. FINANCIALPERFORMANCEREVIEW Financial Performance Review – Balance Sheet FY - 07-08 FY - 06-07 YoY Growth Rs in Crore % to Total Asset / Liability Rs in Crore % to Total Asset / Liability Source of Funds Equity Share Capital 40.82 1.43% 25.63 1.04% 59.27% Reserves 963.24 33.81% 878.45 35.78% 9.65% Secured Loans 520.75 18.28% 482.48 19.65% 7.93% Unsecured Loans 1324.11 46.48% 1068.58 43.52% 23.91% Total Liability 2848.92 100% 2455.14 100% 16.04% Application of Funds Gross Block 1409.73 49.48% 1101.19 44.85% 28.02% Depreciation 456.63 16.03% 355.03 14.46% 28.62% Net Block 953.10 33.45% 746.16 30.39% 27.73% Capital - Work in Progress 67.5 2.37% 151.27 6.16% -55.38% Investments 295.54 10.37% 228.64 9.31% 29.26% Inventory 2143.87 75.25% 1738.61 70.82% 23.31% Sundry Debtors 4.45 186.96% 0.54 175.99% 724.07% Cash and Bank Balance 249.54 8.76% 89.01 3.63% 180.35% Total Current Assets 2397.86 84.17% 1828.16 74.46% 31.16% Loans and Advances 305.42 10.72% 366.41 14.92% -16.65% Fixed Deposits 14.81 0.52% 119.36 4.86% -87.59% Total CA , Loans & Advances 2718.09 95.41% 2313.93 94.25% 17.47% Current Liabilities 1138.75 39.97% 937.15 38.17% 21.51% Provisions 46.56 1.63% 47.71 1.94% -2.41% Total CL and Provisions 1185.31 41.61% 984.86 40.11% 20.35% Net Current Assets 1532.78 53.80% 1329.07 54.13% 15.33% Total Assets 2,848.92 100.00% 2,455.14 100.00% 16.04%
  5. 5. FINANCIALPERFORMANCEREVIEW Financial Performance Review – Profit and Loss FY - 07-08 FY - 06-07 YoY Growth Rs in Crore % to Total Income Rs in Crore % to Total Income Income Sales Turnover 2671.33 85.55% 1850.34 76.40% 44.37% Other Income 3.21 0.10% 22.31 0.92% -85.61% Stock Adjustment 447.84 14.34% 549.29 22.68% -18.47% Total Income 3122.38 100% 2421.94 100% 28.92% Expenditure Power and Fuel 176.74 5.66% 113.08 4.67% 56.30% Employee Cost 297.23 9.52% 208.68 8.62% 42.43% Other Expenses 2,115.05 67.74% 1,712.78 70.72% 23.49% Selling Expenses 92.57 2.96% 83.32 3.44% 11.10% Miscellaneous Expenses 19.13 0.61% 13.48 0.56% 41.91% Total Expense 2700.72 86.50% 2131.34 88.00% 26.71% Operating Income 418.45 13.40% 268.29 11.08% 55.97% PBDIT 421.66 13.50% 290.6 12.00% 45.10% Interest 169.52 5.43% 93.84 3.87% 80.65% PBDT 252.14 8.08% 196.76 8.12% 28.15% Depreciation 96.19 3.08% 79.66 3.29% 20.75% Profit Before Tax 156 5.00% 75.37 3.11% 106.98% Tax 47.23 1.51% 38.61 1.59% 22.33% Net Profit 108.77 3.48% 79.28 3.27% 37.20% Equity Dividend 20.5 19.22 6.66% Earning Per Share 4.24 3.09 37.22%
  6. 6. FINANCIALPERFORMANCEREVIEW Financial Performance Review – Cash Flow FY - 07-08 FY - 06-07 YoY Growth Rs in Crore Rs in Crore Net Profit Before Tax 156 117.89 32.33% Net Cash from Operating Activities 183.19 -561.53 -132.62% Net Cash (Used in) /from Investing Activities -287.99 -487.26 -40.90% Net Cash (Used in) /from Financing Activities 160.79 251.16 -35.98% Net Increase / Decrease in Cash 55.98 -797.63 -107.02% Opening Cash and Cash Equivalent 207.36 1006 -79.29% Closing Cash and Cash Equivalent 263.34 211.1 26.87%
  7. 7. KEYFINANCIALHIGHLIGHTS Key Financial Highlights • Sales turnover increased to 2671.33 Cr, 44.37% growth YoY • Operating income increased to 418.45 Cr, 55.97% growth YoY • PBT increased to 156 Cr, 106.98% growth YoY • Net profit increased to 108.77, 37.20% growth YoY • Earnings per share increased to 4.24, growth 37.22% YoY • Current assets increased to 2397.86, growth 31.16% YoY Dividends Declared Announcement Date Effective Date Dividend Type Dividend (%) Remarks 25-04-2008 28-05-2008 Final 80 - 27-04-2007 25-05-2007 Final 75 AGM 29-04-2006 24-05-2006 Final 70 AGM 29-04-2005 24-05-2005 Final 60 AGM 14-05-2004 28-06-2004 Final 50 AGM 15-05-2003 30-06-2003 Final 40 AGM Trend of Share Prices on BSE
  8. 8. RATIO ANALYSIS
  9. 9. PROFITABILITYRATIO Profitability Ratio GPM, OPM – With marginal change in expenses, the increased realization of works bill led to the increase of GPM and OPM NPM - Interest costs increased by 80% which has led to the drop in PAT ROTA - Profit (PBIT) increased by 80% as compared to assets increasing by 17%. Existing assets have been utilized properly thus generating more profits ROCE - Shareholders equity remains the same for the year but the profits have increased relatively generating high returns for shareholders on their invested capital Profit Margins Return on Assets and Equities
  10. 10. LEVERAGERATIO Leverage Ratio • Shareholder equity has remained same. The increase in debt-equity ratio is due to increase in unsecured loans • The financial leverage has increased to 1.87 • High debt-equity ratio reflect that it is capital intensive industry • Interest paid has increased due to increase in unsecured loans (23% increase YoY) • Leverage ratio is in line with the industry standard as compared to its competitors • High leverage position will generate higher returns but the risk is also high for investors Debt Equity Ratio Interest Coverage Ratio
  11. 11. LIQUIDITYANDTURNOVERRATIO Liquidity Ratio • Current assets have increased by 17% mainly due to increase in inventory (23% YoY) and increase in cash and bank balance (180% YoY) • The current liability has increased by 20% • Inventory management needs focus as there is opportunity for improvement • Low quick ratio is a cause of concern for lenders and short term creditors Current & Quick Ratios Turnover Ratios •Increased in turnover clearly depicts the better utilisation of assets to generate revenues.
  12. 12. INDUSTRY COMPARISONS
  13. 13. INDUSTRYCOMPARISON–DEBTEQUITYRATIO Competitors Last Price Market Cap. Sales Net Profit Total Assets (Rs. cr.) Turnover Jaiprakash Asso 68.75 8,138.63 3,985.00 610 12,832.28 Unitech 28.55 4,634.74 2,802.27 1,030.68 10,261.35 IRB Infra 112 3,722.48 - - 1,375.26 IVRCL Infras 105.95 1,414.48 3,660.60 210.48 2,673.83 Hind Constr 42.3 1,083.94 3,082.76 108.77 2,848.92 Nagarjuna Const 46.35 1,060.70 3,472.94 164.11 2,466.20 Era Infra Eng 68.95 986.11 1,464.48 121.37 1,936.70 Patel Eng 151.35 902.94 1,330.02 147.61 1,502.06 Simplex Infra 137.95 682.47 2,835.82 90.08 1,502.45 Net Profit Comparison Total Assets Comparison
  14. 14. INDUSTRYCOMPARISON–DEBTEQUITYRATIO Debt Equity Ratio (DER) • HCC has large leverage on books, with DER of 1.84, as of March 2008 • HCC has a high DER as compared to the industry average of 0.6 • IVRCL and Simplex enjoy comfortable financial leverage positions vs. peers
  15. 15. INDUSTRYCOMPARISON–OPERATINGCASH FLOWS Operating Cash Flows • HCC has a positive cash flow from operation as compared to its competitors • Positive operating cash flow of HCC gives favorable position vis-à-vis its competitors
  16. 16. INDUSTRYCOMPARISON–RETURNONCAPITAL EMPLOYED Return On Capital Employed (ROCE) • HCC enjoys a higher ROCE as compared to industry average of 15%
  17. 17. HOW DO PEOPLE LOOK AT IT?
  18. 18. HOWDOESTHEINVESTORLOOKATIT? Key Points for Investor • Changing Order Book composition: HCC’s order book composition is changing towards more profitable segments like irrigation and power which will help the company to improve its margins • Liquidity position is in a safe territory and hence the company is in a comfortable position to raise capital from lenders and get cash needed for its growth • Company dividend payout has been on a rise YoY • Strong order book pipeline: CAGR for order inflow stands at 16% • A long-term pay-back period, possible dilution in earnings as a result of huge capital necessitated by the nature of projects and execution risks do not augur well for this otherwise established company’s earnings visibility in the medium term • Continued to generate greater returns from its assets. ROCE increased from 7.7% to 11.2% (YoY) Actionable Items • P/E ratio of 48 is healthy with string order book for the next two years • Investor should have a long term view for remaining invested
  19. 19. HOWDOESTHELENDERLOOKATIT? Key Points for Lender • Top Line Growth with net income increasing 30% YoY with strong control on costs • Debts have been on a rise vis-a-vis equity since 2006 and is a cause of concern • The interest coverage ratio for FY-07, though comfortable at 3.1 times the profits, has nevertheless declined from over about 4 in FY-06 to about 2.9 in FY-08. There is a less chance that interest cost will ease in the current scenario • HCC has been taking more of unsecured loans which shows a risky profile in case of default for lenders. Actionable Items • should have a long-term view seeing the healthy state of order book and increasing ROE
  20. 20. HOWDOESTHEMANAGEMENTLOOKATIT? Key Points for Management • Liquidity even though still at a comfortable level the trend is declining which management needs to keep a check. •HCC’s project portfolio have traditionally been long-term in nature and so it is very important to maintain liquidity • NPM drastically reduced due to higher interest cost. The management should look to renegotiate interest terms • Increased commitments towards real estate subsidiaries indicating tightening liquidity scenario for the business • Raising capital: Challenges for management to raise money through capital markets in the current scenario HCC Industry % of CE 2.9 2.3 Actionable Items • Timely execution of projects to bring down working capital cycle • Restructure business: Leverage their skill sets supported by shared services to develop their newly formed business verticals (construction, infrastructure and real estate) • Explore the opportunities in real estate segment, BOT, etc. which are not yet explored to the fullest • Create a special reserve to meet the future challenges of raising capital
  21. 21. SWOTANALYSIS SWOT Analysis Strength   Weakness Increasing market share demonstrated by increasing sales High cost of funds Improved process efficiencies by deploying ERP packages Capital intensive business Increasing profitability - by moving to BOT mode & thereby diversifying its operation Profit not realized immediately High growth rate Rising operating expense Opportunity   Threat Booming infrastructure sector   Increasing competition High Growing economy Rising Cost Huge investment planned in infrastructure industry by government and public sector Government regulations Booming housing construction Lack of companies involved in leasing machineries and equipments   Lack of skilled manpower
  22. 22. HCC–THEFUTURE HCC – Changing Fortunes The Company is worth a look for a variety of reasons • Reasonable valuation • Restructuring benefits • Substantial revenue contributing from recently executed projects • Shift to high margin business and long term value unlocking potential • CAGR over the past three financial stands at 24% • CAGR for order inflow stands at 16% Robust Pipeline Present order book stands at Rs.10,200 crores well spread over 36 projects • CAGR over the past three financial stands at 24% • CAGR for order inflow stands at 16% • The company has been short listed for orders (L1 stage ) worth Rs.4920 crores • The company has pre-qualified for orders of another Rs.11,200 crores The Road Ahead
  23. 23. KEYLANDMARKPROJECTS Bandra Worli Sea Link • Likely to be completed in 2009 • Maharashtra Cabinet has approved a claim of Rs.220 crore which the company has booked in losses so far Real Estate Venture The biggest trigger for the stock and new growth driver for the company is its on- going project to develop Lavasa Hill station. IT Park An ITAn IT park in Mumbai is ready and willin Mumbai is ready and will contribute to revenues in FY10contribute to revenues in FY10 Bandra Worli Sea Link Pir Panjal Tunnel, J&K Growing Infra Business New projects on BOT or EPC have been under taken by Company
  24. 24. APPENDIX References HCC Director’s Report http://www.hccindia.com/ http://www.icicidirect.com/ http://www.moneycontrol.com/ Abbreviations BOT – Build, Operate, Transfer CAGR – Compounded Annual Growth Rate YoY – Year on Year NCC – Nagurjuna Construction Company IVRCL – IVR Constructions Limited Financial Statements Summary Schedules Financial Statements XLS Summary DOC Schedule
  25. 25. THANKYOU

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