Research Notes – October 15, 2010

Buy HCC – TP Rs.78

 Buy call on Hindustan Construction Company is maintained with a one year target price of Rs.78.

 The company is expected to report 8.3% revenue growth for 2QFY11 at Rs.850 crore.

 Company’s projects in Jammu & Kashmir were affected by the recent unrest in the state, which has disturbed project execution.

 Operating profit for the quarter may fall to 12.5% and the interest cost is expected at Rs.56.4 crore because of increase in debt to Rs.2500 crore from Rs.2100 crore for 2QFY10.

 As a result, PAT is expected at Rs.11.8 crore from Rs. 29. 7 crore for the same period in the previous quarter.

 Problems in the J&K had reduced resource movement in the troubled times and this would have affected project execution.

 The company has been implementing some irrigation projects in Andhra Pradesh and its progress has also been slow.

 It seems that the second half of FY11 may be challenging. However, buy call is maintained with the same target price of Rs.78, considering the long term view.


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