HCC - Infra giant with massive turnaround story!

@aayush1602 absoluely agree with your analysis, although that 42 to 34 fall in stock price i dont see it the way u do, but that is too minor to discuss…
see subcontracting is just not employee cost, there are smaller companies who subcontract for hcc, knr being one… these companies charge a premium too for subcontracting, plus there is a lot of operational delays if subcontacting is done in significant amount which inturn increases the expenses in a number of ways…
if you see, during the winter peak season for this company, they subcontract 40percent of their topline on a average , with a lot of new companies coming up along with the expected infra boom(like one called kridhan infra which is going to be big in coming year in which in am invested, its a Singaporean epc major), they will lose topline to other compititors, if they dont change their model of execution, and decreased the subcontracting the bottomline will not have any buffer to topline fall… who knows, with this management, they may start subcontracting more!..

This is theory, what do you have to say about this?

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Yep! You are right that subcontrating costs are increasing but what I have experienced is that subcontracting happens in many industries like pharma, auto, IT, etc. It is taken up because they are less costly than hiring a full time employee for the same job. Now when the environment is tough like the winters in J&K, naturally, they will demand more payment to work. Plus, labor prices depend on local factor too. Hence, margins are affected as the business is seasonal.This is my understanding for the case. KNR or other infra companies don’t face the same.

What worries more is they have the capability to build BVSL type projects but apparently they will not be able to. Just want this Lavasa thing to be out from HCC asap. If shareholder activism would have been strong in India, many would have revolted against HCC for Lavasa thing…

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indeed, this year’s annual report will through good amount of light interms of outlook

Yeah, wait & watch mode…

Hey, what is your take now? Any insiders, I just had that the bankers were already telling Lavasa will go to NCLT most probably. Effect on HCC could get exacerbated if the flat owners call for refund. Lavasa earned quite a lot from that. Although MHRERA is not obliging that.

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A technical speculation…

The integrity of management has been questionable since long as they never stood by their commitments to retail investors. In current scenario it looks like LAVASA is killing HCC and sooner it gets disassociated with Lavasa… better for HCC share holders. Either Lavasa gets into SDR or even if it gets sold off (not sure if they can get good buyer as networth has already eroded)

Does anyone has the copy of the latest concall transcript ?

They had a meeting with Rare Enterprises yesterday. No presentation provided though. Also looks like they won part of Mumbai Coastal Road.

Also the J&K Kishenganage Project is also over.

http://www.tribuneindia.com/news/jammu-kashmir/pm-to-inaugurate-kishanganga-project-on-may-19/589755.html

To me it seems the management has a sense of arrogance. No post on BSE on all this. Think they feel they are par above other EPC but because of Lavasa they are not able to fly high. Agreed they are good builders (Worli Sea-Link, Lavasa itself). But they have to understand they are not the only good EPC out there now. They should be more forthcoming to investors.

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Should be able to clear Lavasa debt in 18 months, says HCC CMD

INTERVIEW VIDEO - https://twitter.com/CNBCTV18News/status/992266425250164736

https://www.moneycontrol.com/news/business/hcc-bags-rs-737-cr-contract-for-bangladesh-nuclear-power-plant-2584195.html


If he is successful in taking out this albatross from his neck, then maybe core operations would fire the stock

this company will turn around . I have full faith
Lavasa will admitted to nclt . Hcc parent will pay the contingent liability.

What gives you the confidence that it will turn around, btw? They are not even able to recover the arbitration dues. I have burnt my fingers badly with this stock. So far, their credibility as a quality construction firm does not align in any way with their credibility as a shareholder friendly company. Doesn’t make much sense for me to exit now, but I can’t see any light at the end of this tunnel yet.

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https://www.moneycontrol.com/stocks/reports/hindustan-construction-company-unaudited-financial-resultsthe-company-forsecond-quartersix-months-ended-september-30-2018-13113101.html

“HCC has written off its entire investment of Rs.1,046 cr in Lavasa
Corporation as a matter of prudence pursuant to the admission of its 68.7%-owned
subsidiary into NCLT under IBC. The write-off has no impact on HCC cash flows.
Furthermore, HCC has fully accounted for all of its contingent liability obligations given to
Lavasa lenders, including Corporate Guarantees and Put options. A substantial majority of
these obligations amounting to Rs.943 crore have been restructured for Rs.514 crore at
benign, non-cash interest rates, repayable at the end of March 2023, thereby resulting in
immediate savings to the company. The sum total impact of all write-offs in the quarter,
adjusted for tax, is Rs.1,531 crore. Having comprehensively accounted for its entire
exposure to Lavasa, HCC expects no further impact on account of its erstwhile subsidiary”

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The quarter end will see a new CFO, let us see how the new CFO shapes the ailing company

IMHO the turnaround is years away (I am referring to the title of the post here). It is not only a question of the debt, but also the time needed to raise a company onto a level high enough so as to restart the projects. One needs to keep in view that any stalled project, especially construction ones, suffer from degradation as well as deterioration. The amount involved in resuming such a project can be exponentially higher than the original cost.

The recent Rights issue has raised about 500 Cr, and promoter’s stake has gone up to 33.12% from 27.80%, which seems a positive, albeit only a small one. The equity has increased by almost 50% to 151…30 Cr from 101.55 Cr which may not be so good.

There are several red flags in the Auditor’s Report, but to be fair, they have also stated that they have not come across any fraud by the company or its officers.

Not being judgmental here, but just wanted to put in my two bits of what I considered relevant and factual.

Regards

Sandeep
Disc: Invested ages ago and booked profit. Watching the stock with a view to investing.

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