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CMP:  Rs 88.60

Investment horizon: 1 year

In this meltdown of stock market, realty sector is bleeding the most. It is down 65% from its peak. The sector is under performing due to hardening interest rates and rising commodity prices.  Many of the realty are now available at attractive valuations as a result of re-rating in this sector.

One of the growth pick in this segment is HCC. HCC is an integrated group with eight decades of experience and has interests in construction, real estate, and infrastructure development. HCC specializes in technical complex, new age construction in infrastructure projects, as well as EPC, BOT, integrated projects and townships. 

HCC’s group companies comprise of HCC construction, HCC infrastructure, HCC Real Estate and Lavasa Corporation.

The construction business includes a variety of activities – building bridges, roads, railways, power plants and irrigation projects. It has an excellent track record of executing over 300 bridges, 42 dams and barrages, 13 hydel and 4 nuclear power plants.

Its infrastructure division includes services like PPPs, BOT projects, ports and airports. In real estate segment HCC is into development and has a huge land bank of roughly 14,000 acres.
They have successfully constructed Hydroelectric, Nuclear, Thermal, Gas and diesel based power projects. Thus, NSG clearance has opened up further opportunities for the company in the high margin segment.

Its order book has doubled in the past four years with a CAGR of 20% since 2002 and currently stands at Rs 9692 crores and is well spread over 36 projects. This turns out to be 3.14x of FY2008 income. Its current project portfolio consists of 6 hydel project contracts, 4 nuclear projects, 20 transportation projects and 4 water supply and irrigation projects.
The company has initiated a restructuring exercise, which will be beneficial over the long term. It has further restructured the construction business into five different verticals namely transport, water, hydel, nuclear and thermal power. Such exercise will help HCC to focus effectively. Subsequently they plan to list the subsidiaries with HCC holding being the holding company.

Outlook

India in order to match global standards need to develop its infrastructure. In the eleventh 5 yr plan, investments to the tune of USD $294bn has been allocated for development of infrastructure. Such initiative from government will act in favour of construction companies in long term.
The company is worth looking for a variety of reasons including reasonable valuations, restructuring benefits, substantial revenue contribution from recently executed projects, a healthy order book shift to high margin business and long term value unlocking business. The stock is worth considering if one has investment horizon of 1 year. One can expect an upside of 40% from the current levels.

Tags: Forecasting, Investing, Investment, Long Term, Real Estate, Secondary Market, Stock Idea, Stock Market, Stock Pick, Stock Tip, Trend Analysis

This entry was posted on Monday, September 15th, 2008 at 3:44 am and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.