Hindustan Construction Company (HCC) saw significant growth in key financial metrics from FY2006-07 to FY2007-08. Sales turnover increased 44% and net profit increased 37%. However, interest costs also increased substantially, lowering the net profit margin. While current assets grew 31%, current liabilities also increased 21%, reducing liquidity. HCC has higher leverage than industry averages. The management will need to focus on improving liquidity and reducing interest costs as the business model requires substantial debt for long-term infrastructure projects.

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. 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. 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. 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. 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. 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. 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. RATIO ANALYSIS

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. 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. 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. INDUSTRY COMPARISONS

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. 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. 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. INDUSTRYCOMPARISON–RETURNONCAPITAL
EMPLOYED
Return On Capital Employed (ROCE)
• HCC enjoys a higher ROCE as compared to industry average of 15%

17. HOW DO PEOPLE LOOK AT IT?

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. 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. 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. 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. 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. 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. 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. THANKYOU