Hindustan Construction gets LA

ICRA has reaffirmed the LA rating assigned to the Rs. 70 crore non-convertible portion of Rs. 90 crore partially convertible debenture programme of Hindustan Construction Company (HCC), indicating adequate safety. The rating takes into account the improved work order position of HCC and its higher profitability. The rating is however constrained by the high gearing of the company.

The current order book position of the company is strong at over Rs. 1,800 crores. In addition to executing high value projects with long turnaround time, the company is now focussing on other segments having a short turnaround time. HCC has taken a step in this direction by executing the Mumbai-Pune Expressway and the Ennore Port Trust projects ahead of schedule.

The rating agency expects such high value projects with short turnaround time to favourably alter the financial risk profile of HCC. With higher level of activity happening in the roads and bridges sector, as compared to the power and hydro-electric sectors that have been the main strengths of HCC in the past, the company has successfully shifted its focus to the transportation sector. The successful completion of the Mumbai-Pune Expressway helped HCC to establish its competence in this sector and bid successfully for other roads/bridges projects. The shorter duration of projects in this sector will help the company to improve its working capital management. As on March 31, 2001, this sector comprised 60 per cent of the total order book position of HCC.

HCC's operating income fell 15 per cent from Rs. 560 crores in FY 1999 to Rs. 474 crores in FY 2000 due to lack of fresh orders in 1999-2000 on account of the slowdown in the infrastructure activity and the decision being delayed by clients on a number of projects. Despite a fall in turnover, the operating profit improved substantially during FY 2000, registering a growth of around 41 per cent over the previous year. The operating margins (OPBDIT/OI) improved from 11.5 per cent to 19 per cent, mainly on account of the reduction in raw material costs and job work expenses. HCC's PAT increased by 131 per cent from Rs. 9.35 crores in 1998-99 to Rs. 24.63 crores in 1999-2000 while the return on capital employed improved from 13.3 per cent to 16.9 per cent over the same period.

In 1998-99 and 1999-2000, HCC acquired modern plant and machinery worth Rs. 125 crores. This helped in effective implementation of projects which resulted in improved profitability. However, the growth in HCC's operating income has not been commensurate with its increase in gross block resulting in a lower asset turnover ratio. HCC's future profitability will depend on its ability to utilise its existing as well as newly acquired assets.

Corporate Bureau

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Section  : Business
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