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With Rs 6,000 cr stuck in arbitration, HCC faces an uphill road to growth

Friday, 28 March 2014 - 6:15am IST | Agency: dna

A delay in recovering held-up funds of around Rs 6,000 crore from various government agencies is hampering Hindustan Construction Co Ltd (HCC)'s growth potential.

Ajit Gulabchand, chairman and managing director, said the company has not received any payments this year from the government agencies as matters are stuck in arbitration.

The delay is despite the company setting up a strategic team to recover the outstanding from the agencies including NHAI, NHPC and NTPC, among others.

Arbitration, a form of alternative dispute resolution (ADR), is an avenue for resolution of disputes outside the courts.

Officials at the debt-laden construction company did not share specific details as the matter is in courts.

However, while addressing shareholders at last year's annual general meeting (AGM), Gulabchand had said nearly Rs 5,000 crore remains unpaid to the debt-laden infrastructure company from different government authorities. Of that, Rs 2,500 crore was related to various highway construction projects, and the rest in hydro-electric sector.

Abhinav Bhandari, analyst, Elara Capital, said the Rs 6,000 crore figure in most likelihood includes the interest component as well.

"The work-in-progress recovery amount mentioned in the company's annual report last fiscal was Rs 3,600 crore and I don't think there would have been any change in this figure so far. With matters reaching out-of-the-court settlement, HCC is only likely to receive the principal component," said Bhandari.

Parikshit Kandpal, analyst at Karvy Stock Broking, said HCC's current standalone debt is Rs 4,700 crore while net debt-to-equity ratio stood at 3.68. The company ended third quarter fiscal 2014 with an order book of Rs 13,400 crore; it won Rs 2,200 crore orders during the quarter. In addition, the company is also L1 (lowest bidder) in Rs 1,400 crore projects.

Analysts said HCC's balance-sheet is in bad shape and is the biggest problem for the company. They said delays in decision making process has certainly impacted the growth potential of the company and that HCC management's forecast of 10-11% margin in the future is not sustainable.

"Weak revenue visibility and an extended working capital cycle are major concerns for the company. We believe the stock will trade at a discount to fair value till revenue visibility improves and concerns on a leveraged balance sheet and Lavasa get resolved," said an analyst.

On payment-related matters getting resolved, an analyst said, "Any concrete progress in the recovery procedure can only be expected post elections once new leadership comes at the Centre."

As for its hill-city project under Lavasa Corporation is concerned, HCC said overall development work has picked up pace with over 5,300 construction workers on ground. Approximately, 628 residential units have been completed as of December 31, 2013. In Mugaon, around 10 lakh square feet development has commenced, while in Dasve around 8 lakh sq ft of residential, commercial and social development is underway.




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