This story first appeared in DNA Money edition on Saturday April 30, 2011.
Hindustan Construction Co (HCC) has blamed its poor performance in the quarter ended March on lax government machinery and delay in decision making, besides high interest costs.
The engineering and construction company reported a sharp decline of 47.4% in net profit at Rs22.6 crore even as turnover increased 10.8% to Rs1,209.73 crore. Earnings before interest, tax, depreciation and amortisation margin for the quarter stood at 14.4%, but the gain was offset by interest costs, which were up 100% at Rs90.27 crore.
Ajit Gulabchand, chairman and managing director of HCC, pointed out the slowdown in government spending on infrastructure last fiscal. “The entire slowdown has been due to a variety of reasons including projects that have not been cleared or have been stopped because of environmental clearances. There are other projects, work on which could not progress because ministries were revamped, thereby causing delay in the entire decision making process. Similarly, elections in five states have had an impact in addition to unearthing of various scams that further delayed bureaucratic decision making. The impact of slowdown isn’t restricted to the government institutions alone as the private sector has been caught up with its own set of issues.”
Making matters worse, many of the expected order backlogs did not materialise, said Gulabchand.
The current fiscal looks better, he said. “The financial year in progress is looking a little better because some of the orders that got delayed from the last year and those expected to come in are likely to get clubbed, thereby creating a better situation for infrastructure. While slowdown continues, the quantum of orders that will be on hand, not necessarily secured by us, would be far more in the next six months than what they were before. To that extent, I think we are better poised in some of the cases to be able to seize a reasonable number of projects in the current year.”
With an order backlog of Rs18,127 crore as of March 31, the HCC management is looking at a 20% increase in annual turnover from the current Rs4,000 crore. “If we are looking at that kind of a turnover, in order to increase the order backlog, we have to look at additional orders of Rs6,000-8,000 crore. Whether this is possible... I think there is a good chance. But if the slowdown persists, then it may not really change the situation much. This is a fact we have seen and we are only hoping things get better here on,” he said.
Meanwhile, HCC is looking to introduce the business activities of the recently acquired Swiss company Karl Steiner AG to the Indian market sometime during the second or third quarter this fiscal. The management will be setting up an India subsidiary (Karl Steiner AG) with plans to grow the business up to Rs5,000 crore. Thereafter, it will look at possibilities of making opportunistic forays into Europe, Middle East and Africa.
The performance of Lavasa Corp, another subsidiary, has been hurt by the environment ministry’s order to stop work.
Lavasa reported a lower net profit of Rs112 crore for last fiscal as against `140 crore the previous fiscal. The HCC management expects the issue to be resolved shortly as it is awaiting environmental clearances.
Another subsidiary, HCC Infrastructure, has an asset portfolio of `5,500 crore including six NHAI road concessions. There are fundraising plans in the infrastructure business and the company may announce a placement in the coming months.
Hindustan Construction Co (HCC) has blamed its poor performance in the quarter ended March on lax government machinery and delay in decision making, besides high interest costs.
The engineering and construction company reported a sharp decline of 47.4% in net profit at Rs22.6 crore even as turnover increased 10.8% to Rs1,209.73 crore. Earnings before interest, tax, depreciation and amortisation margin for the quarter stood at 14.4%, but the gain was offset by interest costs, which were up 100% at Rs90.27 crore.
Ajit Gulabchand, chairman and managing director of HCC, pointed out the slowdown in government spending on infrastructure last fiscal. “The entire slowdown has been due to a variety of reasons including projects that have not been cleared or have been stopped because of environmental clearances. There are other projects, work on which could not progress because ministries were revamped, thereby causing delay in the entire decision making process. Similarly, elections in five states have had an impact in addition to unearthing of various scams that further delayed bureaucratic decision making. The impact of slowdown isn’t restricted to the government institutions alone as the private sector has been caught up with its own set of issues.”
Making matters worse, many of the expected order backlogs did not materialise, said Gulabchand.
The current fiscal looks better, he said. “The financial year in progress is looking a little better because some of the orders that got delayed from the last year and those expected to come in are likely to get clubbed, thereby creating a better situation for infrastructure. While slowdown continues, the quantum of orders that will be on hand, not necessarily secured by us, would be far more in the next six months than what they were before. To that extent, I think we are better poised in some of the cases to be able to seize a reasonable number of projects in the current year.”
With an order backlog of Rs18,127 crore as of March 31, the HCC management is looking at a 20% increase in annual turnover from the current Rs4,000 crore. “If we are looking at that kind of a turnover, in order to increase the order backlog, we have to look at additional orders of Rs6,000-8,000 crore. Whether this is possible... I think there is a good chance. But if the slowdown persists, then it may not really change the situation much. This is a fact we have seen and we are only hoping things get better here on,” he said.
Meanwhile, HCC is looking to introduce the business activities of the recently acquired Swiss company Karl Steiner AG to the Indian market sometime during the second or third quarter this fiscal. The management will be setting up an India subsidiary (Karl Steiner AG) with plans to grow the business up to Rs5,000 crore. Thereafter, it will look at possibilities of making opportunistic forays into Europe, Middle East and Africa.
The performance of Lavasa Corp, another subsidiary, has been hurt by the environment ministry’s order to stop work.
Lavasa reported a lower net profit of Rs112 crore for last fiscal as against `140 crore the previous fiscal. The HCC management expects the issue to be resolved shortly as it is awaiting environmental clearances.
Another subsidiary, HCC Infrastructure, has an asset portfolio of `5,500 crore including six NHAI road concessions. There are fundraising plans in the infrastructure business and the company may announce a placement in the coming months.
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