HCC earnings call recording – https://hccindia.com/uploads/reports/Analyst-Meet-Recording-Q3-FY24.mp3
My short summary
Q3 FY24 Revenues up ~8%, EBITDA margin at 12.4% slightly down, standalone and consolidated PAT up (from standalone losses in FY23). Bids worth 7000 crores submitted, and pipeline of 46000 crores in future bidding (in the next 3-12 months. A good part of it seems to be in hydro and pump storage, but medium term expect to more in the transportation segment – railways, tunnels etc. with the odd hydro project. Nothing mentioned about nuclear except that they were clear they won’t focus on nuclear projects opportunities outside India). Mumbai Coastal Road – first large-scale monopile project in India.
Money from Steiner AG sale (partly used to fund Steiner – seemed vague, partly to return capital to HCC for growth, not for debt). One can potentially expect to see either exit or dilution of Steiner AG development business too in the next few quarters (my inference from the answer to one of the questions). Larger fund raising planned in a couple of quarters – to support growth and strengthen balance sheet with more liquidity (rights issue, expecting approval soon).
Current execution run rate of about Rs.1200 crores per quarter. Looking for average size of projects only around 1000-1500 crores, with some projects of over Rs 2000-3000 crores. Lumpiness expected because of fewer projects that are more material in size.
Debt – OCDs outstanding of Rs.2000 crores (annual repayment on or before 31st March each year, i.e. bullet payments; repayment of 340 crores this March which will reduce debt further. Net debt reduction by about 100 crores in FY24). Weighted avg interest rate of 11% on debt. Interest cost going forward expected to be around Rs.400-450 crores in FY25 (reduced by half from past – not sure if it’s FY23 or FY24). Will focus on refinancing debt after building order backlog and cash flow improves. Will try to prepay debt as arbitration awards come in. Arbitration awards – for 4-5 awards, trying to settle via Vivaad se Vishwaas scheme, but for bulk of awards, not opting for it as it’s financially unattractive.
Land parcels worth 50 acres (Navi mumbai, Thane, Mumbai etc.) – indicated they will disclose more details next time.
I think it will be interesting to see how much of that 46000 crore in pipeline translates into wins. They haven’t won anything in 6 months (also because they have bid very little), but these projects are in their areas of strength, so a good win rate here is important.
Question – Can anyone share some perspective on how rights issue tend to get priced? I mean it will be at a good discount for sure, but I don’t know much about how the pricing is arrived at. Would love to understand better.
Disclosure: I trimmed ~20% of my position last month. I am optimistic about the company but with the upcoming dilution, uncertainty of order wins, possibility of having to raise debt again (never know what can go wrong), and heavy reliance on government projects, it is still a risky investment proposition.
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