Hindustan Construction Company Limited — Q3 FY24 earnings call

Call held 8 Feb 2024

Management summary

Hind.Construct. reported a strong Q3 FY24, marked by an 8.6% increase in consolidated revenue and a significant return to profitability with a consolidated PAT of ₹233 crores. The company maintained a healthy EBITDA margin of 12.4% and highlighted a robust order book of ₹11,000 crores, supported by a substantial bidding pipeline. Management expressed confidence in the infrastructure sector's growth and the company's strategic positioning for future order inflows and debt reduction.

Highlights

  • Consolidated revenue for Q3 FY24 was ₹1,474 crores, an 8.6% increase year-on-year from ₹1,357 crores in Q3 FY23.

  • Consolidated profit for the quarter stood at ₹233 crores, a significant turnaround from a loss of ₹283.7 crores in Q3 FY23.

  • Standalone E&C turnover grew by 7.7% to ₹1,245 crores in Q3 FY24, up from ₹1,155 crores in Q3 FY23.

  • Standalone profit surged to ₹68.5 crores in Q3 FY24, a 171.8% increase from ₹25.2 crores in Q3 FY23.

  • EBITDA margin was maintained at a healthy 12.4% for the quarter.

  • Order book at the end of Q3 FY24 was ₹11,000 crores, with 50% from the Transport sector.

  • The company has a strong bidding pipeline of over ₹46,000 crores for future projects, with bids worth ₹7,000 crores under evaluation and another ₹14,000 crores in process for submission.

Key financials

  1. Consolidated Revenue ₹1,474 Cr +8.6%YoY
  2. Consolidated PAT ₹233 Cr
  3. Standalone E&C Turnover ₹1,245 Cr +7.7%YoY
  4. Standalone PAT ₹68.5 Cr +171.8%YoY
  5. EBITDA Margin 12.4%
  6. Order Book ₹11,000 Cr -8.3%QoQ

What they filed

Q1 FY27: revenue down 9.0%, net profit up 0.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,407 1,007 1,374 1,091 961 −32%925 −8%992 −28%993 −9%
EBITDA242 -83 288 179 146 −40%67 +181%171 −41%105 −41%
Net profit64 -39 90 51 48 −25%8 +121%59 −34%51 +0%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · future quarters · Medium confidence 12-14%
    our margins are anything between 12-14 it depends on composition of the project, what we execute during particular quarter. So, one project may have an EBITDA margin which is giving me 15%, one may give 8% so it's a combination of those 30-40 projects what we will get into this EBITDA for a quarter.

    — Girish Gangal

Debt

  • Interest Cost Debt · next financial year · Medium confidence ₹400-450 crores

    Previously ₹800 crores (FY24 estimate) → ₹400-450 crores

    going forward our interest cost should be in the range of 400 crores or 450 crores

    — Rahul Shukla

  • Net Debt Reduction Debt · end of this financial year · Medium confidence ₹100 crores
    net debt reduction could be around 100 crores at the end of this financial year.

    — Rahul Shukla

  • Debt Status Debt · as early as possible · Low confidence Debt Free
    Our goal is very clear that we want to prepay debt and we want to be debt free as early as possible.

    — Arjun Dhawan

Order Inflow

  • Bidding Pipeline Timeframe Order Inflow · next 3 to 12 months · Medium confidence 3 to 12 months
    Yes, over the next 3 to 12 months and you know obviously one of the things that I wanted to add, I guess was the fact that, I actually pointed out that the stats should actually be a little bit more meaningful in the coming months.

    — Arjun Dhawan

  • New Order Capacity Order Inflow · future · Medium confidence ₹15,000 crores
    First of all, we have the capacity to take on new orders of about 15,000 crores

    — Arjun Dhawan

Project Strategy

  • Average Project Size Project Strategy · future · Medium confidence ₹1,000-1,500 crores
    we are looking at our sweet spot anywhere between 1,000 to 1,500 crores is being the average size of the project

    — Arjun Dhawan

  • Larger Project Size Project Strategy · future · Medium confidence ₹2,000-3,000 crores
    there will be other projects that will be much larger, somewhere in between the 2,000 to 3,000 crore range.

    — Arjun Dhawan

Capital Raise

  • Rights Issue Size Capital Raise · coming weeks · High confidence up to ₹350 crores
    So, the board today has approved rights up to 350, we still have to take a call whether it's up to 300 or 300 plus or minus.

    — Arjun Dhawan

Risks & concerns

  • Competition in Commodity Projects

    medium

    Management notes 'fairly ruinous competition' in less complex, commodity-type projects, which HCC aims to avoid by focusing on its engineering edge.

    Management acknowledged

  • Labor Availability and Wage Inflation

    medium

    The 'migrant labour population' is being squeezed, especially in urban areas with high cost of living, posing a challenge for continuous supply of skilled manpower.

    Management acknowledged

  • Project Approval and Clearance Delays (Hydro)

    medium

    Permissions, clearances, and security clearances for hydro projects can be complicated and cause delays in bringing projects to market.

    Management acknowledged

  • Arbitration Settlement Delays (Vivaad se Vishwas)

    medium

    The Vivaad se Vishwas scheme process is taking longer than expected due to reconciliation requirements and interest calculations, making some settlements less attractive.

    Management acknowledged

Areas of evasion (3)

  • Exact valuation of Steiner AG and its acquisition cost
  • Specific timeline and amount of capital return from Steiner AG to HCC
  • Valuation of company-owned land parcels

Q&A highlights

2 direct
EBITDA Margin Expectations Direct
First of all, I will answer your question about the dip, there is no dip as such our margins are anything between 12-14 it depends on composition of the project, what we execute during particular quarter. So, one project may have an EBITDA margin which is giving me 15%, one may give 8% so it's a combination of those 30-40 projects what we will get into this EBITDA for a quarter.

Clarifies management's view on current margin performance and provides a realistic range for future expectations based on project mix.

Asked by CA Nihar Shah

Debt Reduction and Future Interest Costs Direct
So, Viraj, historically yes you are right our interest cost has been around 1,000 crore, however we have carved out significant portion of our debt to a separate company and now we can expect that going forward our interest cost should be in the range of 400 crores or 450 crores and that is not because we are planning to make any debt repayment from Steiner but HCC debt itself has gone down that's why interest costs are going down.

Provides specific, significantly reduced interest cost guidance for the next fiscal year and details on the current debt structure (OCDs) and repayment plans, crucial for assessing financial health.

Asked by Viraj

Steiner AG Monetization and Capital Return to HCC Partial
Part of the capital will be used to strengthen Steiner AG balance sheet and to capitalize and to fully fund our various equity projects or development projects and part will involve some return of capital to HCC and we don't get into that level of detail but one thing that we are certainly focused on in the next few quarters is to see how Steiner AG can actually contribute to return of capital to HCC as well.

Addresses the use of funds from the Steiner AG sale, indicating a phased approach to capital return to HCC, but remains vague on specific timelines and amounts, leaving some investor uncertainty.

Asked by Mahesh

3 min read 6 chapters

Detailed narrative

Q3 FY24 Financial Performance and Turnaround

HCC reported a strong Q3 FY24, with consolidated revenue reaching ₹1,474 crores, an 8.6% increase from ₹1,357 crores in Q3 FY23. A significant turnaround was observed in profitability, with consolidated PAT at ₹233 crores compared to a loss of ₹283.7 crores in the prior year. Standalone E&C turnover also grew by 7.7% to ₹1,245 crores, and standalone profit surged by 171.8% to ₹68.5 crores. The company maintained a healthy EBITDA margin of 12.4% for the quarter, reflecting improved operational efficiency.

Order Book, Bidding Pipeline, and Sector Focus

The order book stood at ₹11,000 crores at the end of Q3 FY24, with approximately 50% contributed by the Transport sector. HCC has a robust bidding pipeline of over ₹46,000 crores for future projects, with bids worth ₹7,000 crores currently under evaluation and another ₹14,000 crores in the process of submission for the coming quarter. Management highlighted strong opportunities in Hydro, Water, Nuclear, Railways, and Pumped Storage schemes, aligning with India's infrastructure push and net-zero targets.

Debt Management and Capital Structure

HCC is actively managing its debt, with outstanding Optional Convertible Debentures (OCDs) around ₹2,000 crores. The company expects its interest cost to reduce significantly to ₹400-450 crores in the next financial year, down from an estimated ₹800 crores in FY24. An annual bullet payment of ₹340 crores is due by March 31st, with a projected net debt reduction of ₹100 crores for FY24. The board has approved a rights issue of up to ₹350 crores to support growth initiatives.

Steiner AG Update and Monetization Strategy

Steiner AG, HCC's Swiss subsidiary, has divested its construction business to focus purely on real estate development. Its development pipeline is valued at 4.9 billion Swiss Francs, with an expected cumulative developer fee of 395 million Swiss Francs and a total sellable area of over 7.22 lakh square meters. Management indicated that part of the capital from Steiner will be used to strengthen its balance sheet and fund development projects, with some capital eventually returning to HCC, though specific timelines and amounts remain undisclosed.

Operational Progress on Key Projects

Significant operational milestones were achieved across various projects. The Mumbai Coastal Road project saw the completion of all monopile foundation work, reducing the number of piles from 424 to 79. The first navigation span of the composite bridge was successfully launched on February 2, 2024. The Nikachhu Hydro project in Bhutan achieved wet commissioning of turbines and grid synchronization in December 2023. Other projects like Anji Khad, DMRC DC06, Mumbai Metro, T-49A, and Tehri Pumped Storage are also progressing well.

Industry Tailwinds and Growth Drivers

The infrastructure sector is benefiting from substantial government attention and capex plans, including ₹11 lakh crores announced in the recent budget. Private capex is also reviving, with ₹7-8 lakh crores invested in the last financial year. Public-Private Partnerships (PPP) are gaining traction with over 50 BOT projects valued at more than ₹2 lakh crores. India's commitment to net-zero targets and generating over 500 GW of non-fossil fuel power by 2030 is driving sustained fund allocation in hydro and pumped storage sectors, which are core strengths for HCC.

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