Why HCC Share Price is Rising

The past few days would have been great for investors in the Indian share market.

After a temporary pause which sent midcaps and smallcap stocks on a bender, everything in your portfolio would appear to be going up at an exciting rate.

Notably, a low-priced stock from the realty space has found a lot of takers.

Share price of Hindustan Construction Company (HCC) is up over 17% in the past five days.

In early trade today, HCC share price spiked over 11% and touched an intraday high of Rs 31.11.

In 2023 so far, the stock is up around 45%.

Let's find out what the fuss is all about and why shares of one of the oldest construction companies are rallying.

#1 Strong Turnaround Post Resolution of Lavasa

Five years ago, the National Company Law Tribunal (NCLT) admitted the petition of lenders of Lavasa Corporation, the real estate firm of HCC, for the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC).

Over the years, HCC's performance has been negatively impacted due to write off and provisioning for the debt-ridden Lavasa asset.

The interest expenses continued to eat up into its margins.

In July 2023, the NCLT finally approved a Rs 18.1 bn resolution plan for Lavasa as Darwin Platform Infrastructure emerged as the winning bidder for the company.

HCC now has no control over Lavasa or its subsidiaries.

The resolution process has now cleared a major dark-cloud hovering over HCC and the company is in a far better position.

#2 Debt Resolution

In December 2022, HCC announced the completion of its debt resolution plan.

The main goal was to bring down the company's interest payment and it received support from as many as 23 banks and financial institutions.

Under this plan, HCC has already transferred over Rs 28 bn of liability along with beneficial economic interest in arbitration awards and claims of Rs 65.1 bn as consideration to a Special Purpose Vehicle (SPV).

In an exchange filing back them, HCC had said it will have the right to receive surplus cashflows as a separate transaction, from the realization of awards and claims.

Now in the first quarterly earnings, the company's management highlighted that the SPV debt transfer is expected to be completed by the end of September 2023 quarter.

The company also mentioned that the transfer of SPV debt is expected to reflect in the balance sheet of September 2023 quarter.

So it seems investors are already rejoicing ahead of HCC's quarterly earnings. The company will report numbers later this week on 9 November.

Also, after the resolution process, HCC's debt is restructured such that the principal amount including interest will be repaid annually in the month of March. This gives HCC the flexibility to mobilize funds by end of every year.

#3 Massive Order Book

As of June 2023, the company had an order backlog of Rs 135.7 bn.

The other reason why shares of HCC are rising is because the company is seeing traction in its order book after a long time.

The company has taken up high-level projects including Anji Khad bridge, Delhi Metro DC-06, Tehri PSP, Vishnugad Pipalkoti HEP, Nikachhu HEP, and Mumbai Metro.

Apart from this, the company is expecting around Rs 400 bn of hydro tenders in the next 6 months.

A healthy order book provides strong revenue visibility for HCC.

Investors should watch out for the management's commentary in the upcoming earnings and also track the progress HCC has made so far on its ongoing projects.

#4 Government's New Scheme 'Vivad se Vishwas'

In August 2023, the Indian government launched the Vivad se Vishwas-2 scheme for settling contractual disputes involving the government and government undertakings.

This scheme aims to resolve the government's contractual disputes with private parties, clear the backlog of litigation, and improve the ease of doing business.

In its earnings presentation, the company had said it's evaluating the "Vivad Se Vishwas" scheme on a case-by-case basis for potential benefits.

HCC is now looking to use this one-time settlement opportunity and clear some of the arbitration claims, which it intends to further use in debt reduction.

How Hindustan Construction Shares have Performed Recently

In the past five days, HCC shares have rallied over 17%.

Today, the stock rallied over 11% in early trade before erasing some of the gains and settling 8% higher.

On a YTD basis, the stock is up around 45%. While in the past one year, shares of the company have rallied over 100%.

HCC touched its 52-week high of Rs 31 today and it has a 52-week low of Rs 12.5 touched on 28 March 2023.

Here's a table comparing HCC with its peers on some important parameters -

Comparative Analysis

Company	HCC	Afcons Infra	GR Infraprojects	Ircon International	NCC
ROE (%)	-	17.0	26.3	15.5	11.1
ROCE (%)	32.3	20.2	21.8	18.8	19.9
Latest EPS (Rs)	2.1	-	140.6	8.6	10.5
TTM PE (x)	13.8	-	8.3	16.6	14.3
TTM Price to book (x)	-	-	1.7	2.5	1.5
Dividend yield (%)	0.0	0.0	0.0	2.1	1.5
Industry PE	39.9
Industry PB	4.4

Data Source: Ace Equity

About HCC

Hindustan Construction Company (HCC) is principally engaged in the business of providing engineering and construction services, real estate, infrastructure and urban development and management.

It is one of the oldest infrastructure and construction companies in India.

To know more, check out HCC's financial factsheet.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...