Industry: Infrastructure Construction

Introduction of Infrastructure Construction Sector:

In India Infrastructure Construction has accounted for around 40 per cent of the development investment during the past 50 years. Around 16 per cent of the nation's working population depends on construction for its livelihood. The Indian Infrastruction construction industry employs over 3 crore people and creates assets worth over 20,000 crore. It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital formation. Total capital expenditure of state and central govt. will be touching 8,02,087 crores in 2011-12 from 1,43,587 crores (1999-2000). The share of the Indian construction sector In total gross capital formation (GCF) came down from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to 48 per cent in 1993-94 and stood at 44 per cent in 1999-2000. In the 21 st century, there has been an increase in the share of the construction sector in GDP and capital formation. GDP from Construction at factor cost (at current prices) increased to 1,74,571 crores (12.02% of the total GDP ) in 2004-05 from 1,16,238 crores (10.39% of the total GDP) in 2000-01. The main reason for this is the increasing emphasis on involving the private sector infrastructure development through public-private partnerships and mechanisms like build-operate-transfer (BOT), private sector investment has not reached the expected levels. The Indian construction industry comprises 200 firms in the corporate sector. In addition to these firms, there are about 1,20,000 class A contractors registered with various government construction bodies. There are thousands of small contractors, which compete for small jobs or work as sub-contractors of prime or other contractors. Total sales of construction industry have reached 42,885.38 crores in 2004 05 from 21,451.9 crores in 2000-01, almost 20% of which is a large contract for Benson & Hedges. Global scenario: The global economy is recovering steadily from the lows of 2008. After shrinking by 0.6% in 2009, world economic output was back on positive track registering 5% growth in 2010. Much of the new growth impetus came from developing and emerging economies that witnessed 7.1% growth in 2010 compared to 2.6% in 2009. Even the advanced economies recovered from a 3.6% contraction in output in 2009 to a growth of 3% in 2010. These positive trends have led to lower risk perceptions, greater global financial stability and improved

business sentiments. Having said so, there are some other problematic factors that may impact the future growth. There is economic instability in some countries in Europe. Ireland, for example, is facing threats of a complete banking collapse. Also, there has been a surge in prices of commodities and oil leading to high levels of inflation, which has hit normal life especially in emerging economies like India. There is growing unrest in the Middle East and North African region which has affected Asian trade and market sentiments. Clearly, 201011 brought in good news on the macro-economic front in terms of growth. And economic growth and infrastructure development share a reciprocal relationship. While positive growth sentiments drive higher infrastructure investments, such investments and provision of adequate infrastructure support is essential to sustain over 8% growth over a period of time.

Infrastructure Construction Sector Growth Scenario:

Infrastructure Construction industry of India is an important indicator of the development as it creates investment opportunities across various related sectors. The construction industry has contributed an estimated 3,84,282 crore to the national GDP in 2010-11 (a share of around 8%).As Indian economy, is well on its way to regaining the high

growth momentum seen in the period immediately prior to the economic meltdown of 2008.Advanced estimates suggest that real GDP growth will be 8.6% in 2010-11. The secular growth in GDP has contributed to a significant mprovement in construction activities. Chart B shows that after falling to a low of 5.4% in 2008-09, construction growth recovered to 7% in 2009-10 and has improved further to 8% in 2010-11. While this growth level is still below what was seen in 2006-07 and 200708, the trend over the last two years is in the right direction. Clearly, 2010-11 brought in good news on the macro-economic front in terms of growth. And economic growth and infrastructure development share a reciprocal relationship. While positive growth sentiments drive higher infrastructure investments, such investments and provision of adequate infrastructure support is essential to sustain over 8% growth over a period of time. In fact, the Planning Commissions XIth Five-Year Plan (2007-12)estimates a 15% compounded annual growth rate in infrastructure investment during the period. As a result, its share in GDP is expected to rise from 5.71% in 2006-07 to 8.37% in 2011-12. The infrastructure industry in India is thus poised for significant growth. While there has been an impetus in the sector, the pace of development is still not in sync with the demands of a rapidly growing economy. Already, there are signs that the existing infrastructure base in India is grossly inadequate.

Hindustan Construction Company

Highlights:
MARKET CAP (Rs Cr): 1,613.58 CMP : RS. 27.45 ( as on 9th march 2012 ) Group turnover crossed 7,000 crore post-acquisition of Karl Steiner AG, Switzerland TURNOVEAR:4,144 crore Karl Steiner AG order backlog crossed CHF 1 billion Lavasa posted turnover of 541 crore and PAT of 112 crore HCC Infrastructures first toll-based project, dfskyway became operational inNovember 2010

HCC Group:
HCC is a business group of global scale developing and building responsible infrastructure through next practices. With a group turnover of Rs. 7153 crore (US$ 1.2 billion) as on March 2011, its businesses span the sectors of Engineering & Construction, Real Estate, Infrastructure, Urban development & Management.The HCC group of companies comprises HCC Ltd (Engg & Construction), and its subsidiaries HCC Infrastructure Ltd, Lavasa Corporation Ltd, HCC Real Estate Ltd, Highbar Technologies and Steiner AG.

Core Management Team:

Ajit Gulabchand (Chairman & Managing Director)

Board of directors :
Y. H. Malegam K. G. Tendulkar Rajas R. Doshi Nirmal P. Bhogilal Ram P. Gandhi Prof. Fred Moavenzadeh Sharad M. Kulkarni Anil C. Singhvi

Core Business:
1.Hydel Power: HCC has expanded its construction capabilities to serve the entire spectrum of requirements of the Hydro Power segment. HCC's accomplishments in this geologically complex area of work include several first-of-its-kind dams, barrages, tunnels, underground power stations and surface power stations, along with water conductor systems like surge shafts, pressure shafts and penstocks.

2. Water Solution: HCC's extensive experience and expertise has powered the progress in the Water Solutions segment. Since our debut, we have executed a number of challenging projects including the world's longest barrage. With a strong focus on standards and quality, HCC has developed specialized systems to offer total solutions for high value projects, such as urban water supply systems, pumping stations, water treatment plants and lift irrigation for the rural sector.

3. Nuclear Power and Spcial Project: HCC has built over 50% of India's nuclear power generation capacity. For all 8 phases of the Rajasthan Atomic Power Project HCC has been the construction partner since the first Unit completed in 1972. HCC specializes in pre-stressed containment structures for reactor buildings. The company has executed India's largest nuclear power plant in Kudankulam (2X1000 MW) comprising the country's first Pressurized Light Water Reactors. 4. Transportation: HCC has built some of the most remarkable transportation projects in India. Be it Indias first sea link or metro rail systems or a railway tunnel deep in the mountains connecting Jammu & Kashmir, our technical knowledge and project management experience have guaranteed the successful execution of futuristic and technologically advanced construction. A number of projects are taken on as EPC (engineering, procurement and onstruction).

Basis : On the basis of Order Book.

Trend of Income & Expenditure

Hindustan Construction Co. Ltd. Currency: Rs. Crore (Non-Annualised) Sales Industrial sales Income from non-financial services Income from financial services Interest income Dividends Income from treasury operations Other income Prior period and extra-ordinary income Change in stock Mar-07 12 mths % Mar-08 12 mths % Mar-09 12 mths % Mar-10 12 mths % Mar-11 12 mths %

1,820.20 1,820.20 64.7 21.7 1 17.7 0.4 0.8 549.3

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

2,649.20 2,649.20 41.6 5.1 0.1 36.4 2.2 1.1 447.8

145.54 145.54 64.30 23.50 10.00 205.65 550.00 137.50 81.52

3,123.70 3,123.70 16.2 13.9 0.6 1.7 7.1 61.7 208.9

171.61 171.61 25.04 64.06 60.00 9.60 1,775.00 7,712.50 38.03

3,439.00 3,439.00 27.9 21 0.2 6.7 7.4 231.7

188.94 188.94 43.12 96.77 20.00 37.85 1,850.00 0.00 42.18

3,932.50 3,932.50 46.2 35.5 2.1 8.6 0.4 5.9 190.2

216.05 216.05 71.41 163.59 210.00 48.59 100.00 737.50 34.63

Total income Total expenses Operating expenses Raw materials, stores & spares Purchase of finished goods Packaging and packing expenses Power, fuel & water charges Compensation to employees Indirect taxes Royalties, technical know-how fees, etc. Rent & lease rent Repairs & maintenance Insurance premium paid Outsourced manufacturing jobs Outsourced professional jobs Directors' fees Selling & distribution expenses Travel expenses Communications expenses Printing & stationery expenses Miscellaneous expenditure Other operational exp. of industrial ent Other operational exp. of non-fin. services ent Share of loss in other enterprises Financial charges Fee based financial services expenses Fund based financial services expenses Interest paid Financial charges on instruments Total provisions Non-cash charges Depreciation Amortisation Prior period and extra-ordinary expenses Provision for direct tax Profit after tax PBDITA PBDTA PBT

1,886.10 2,398.70 2,143.00 752.5

100.00 100.00 100.00 100.00

2,694.20 3,033.20 2,716.10 985.4

142.85 126.45 126.74 130.95

3,208.70 3,292.30 2,880.90 1,255.30

170.12 137.25 134.43 166.82

3,474.40 3,624.60 3,197.40 1,086.50

184.21 151.11 149.20 144.39

3,985.10 4,104.20 3,568.40 1,246.20

211.29 171.10 166.51 165.61

113.1 208.7 62 12.1 16.3 26.2 887 14.4 0.1 20.8 17.3 12.6

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

176.7 297.2 111.4 15.9 21.5 28.6 1,003.60 20.8 0.1 21.6 14.5 18.8

156.23 142.41 179.68 131.40 131.90 109.16 113.15 144.44 100.00 103.85 83.82 149.21

236 374.9 128.4 20.6 32 29 728.9 26.7 0.1 21.1 11.5 16.5

208.66 179.64 207.10 170.25 196.32 110.69 82.18 185.42 100.00 101.44 66.47 130.95

215.5 394.4 132.3 28.7 24.8 36.1 1,178.30 37.2 0.2 24.1 17.6 21.9

190.54 188.98 213.39 237.19 152.15 137.79 132.84 258.33 200.00 115.87 101.73 173.81

249.5 467.6 174.3 50.9 58.9 43.3 1,163.10 56.3 0.2 26.4 16.4 15.3

220.60 224.05 281.13 420.66 361.35 165.27 131.13 390.97 200.00 126.92 94.80 121.43

93.8 10.2 83.7 83.7 0.2 79.7 79.7 43.4 38.6 36.8 238.7 155 75.4

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

0.8 170.3 12 158.3 157.5

181.56 117.65 189.13 188.17 0.00

256.9 19.4 237.5 224.3

273.88 190.20 283.75 267.98 0.00

256.6 14 242.6 226.2 0.1 113.9 113.9 16.3 40.4 81.4 461.9 235.7 121.8

273.56 137.25 289.84 270.25 50.00 142.91 142.91 37.56 104.66 221.20 193.51 152.06 161.54

340 3.6 336.3 325.4

362.47 35.29 401.79 388.77 0.00

95 105.7 3.4 48.3 108.8 420.3 262.8 157.1

119.20 132.62 7.83 125.13 295.65 176.08 169.55 208.36

115.2 115.2 0 39.2 125.3 504.1 279.8 164.6

144.54 144.54 0.00 101.55 340.49 211.19 180.52 218.30

152.7 152.7 2.5 40.7 71 589.8 264.4 111.7

191.59 191.59 5.76 105.44 192.93 247.09 170.58 148.14

5,000.00

SALES
2007 2008 2009 2010 2011 1820.2 2649.2 3123.7 3439 3932.5

4,000.00 3,000.00 2,000.00 1,000.00 0.00 2007 2008 2009 2010 2011

PAT
2007 2008 2009 2010 2011 36.8 108.8 125.3 81.4 71

PBT
2007 2008 2009 2010 2011 75.4 157.1 164.6 121.8 111.7

EPS
2007 2008 2009 2010 2011 3.09 4.24 4.89 2.69 1.17

6 4 2 0 2007 2008 2009 2010 2011

RATIO ANALYSIS

LIQUIDITY RATIO

Industry Ratio

HCC 2010 2011

IVRCL 2010 2011

LANCO 2010 2011

NAGARJUNA 2010 2011

Current Ratio Quick Ratio Cash Ratio

1.1 0.6 0.1

1.1 0.5 0.1

1.88 0.20 0.09

1.80 0.18 0.07

1.20 1.11 0.06

1.10 1.02 0.04

1.28 1.15 0.11

0.75 0.66 0.04

1.38 1.01 0.10

1.53 1.12 0.06

Analysis : Liquidity position of HCC has weakened in 2011 compared to what it was in 2010. This can be comment from the fall in current ratio, acid test ratio, and cash ratio for the firm. The reason for fall in current ratio is increase in current liabilities more than current assets. Increase in current liabilities is mainly due to increase in deposits & advances from customer. However current ratio of HCC is highest as compare to its competitors. Quick ratio has weakened mainly because of Increase in inventory as compare to 2010. Where as cash ratio has also weakened as cash is not increased much, there is minimum increase in cash. HCC has lowest quick ratio as compare to its competitors. The liquidity ratios of the HCC are still on the higher side if we compared with the industry ratio.

POFITABILITY RATIO

HCC 2010 G.P Margin N.P Margin ROCE ROE EPS DPS 10.12 2.37 3.66 5.37 1.34 0.8 2011 11.12 1.81 3.5 4.66 1.17 0.40

IVRCL 2010 6.81 1.26 2.24 3.79 2.63 0.8 2011 8.18 2.77 4.31 7.96 5.92 0.60

LANCO 2010 14.29 7.76 6.51 15.39 2.02 NIL 2011 12.01 4.54 3.09 8.09 1.16 NIL

NAGARJUNA 2010 10.94 4.87 5.94 10.36 9.07 1.3 2011 9.71 3.22 4.34 6.87 6.37 1.00

Analysis : Profitability ratio refer t those ratio that are used to assess a businesss to generate earnings. HCC sales has grew by 14 % in 2011 as compare to 2010. Gross profit margin has also increased but Net Profit has fall by 13 % this is mainly due to increase in cost of goods sold. This shows that firm has fails to bring down its cost. Other ratios such as ROCE, ROE has weakened because of decrease in Profit after tax. And also because of foreign acquisition done by company in Switzerland. Earning per share & dividend per share has also fall down mainly because of poor profit.

CAPITAL STRUCTURE RATIO

HCC 2010 Debt equity ratio Debt coverage ratio Interest coverage ratio 1.3 2.5 8.1 1.5 2 8.1 1.66 1.54 2.04 2011 2.28 1.34 1.81

IVRCL 2010 0.87 1.97 1.97 2011 1.05 1.99 1.99

LANCO 2010 0.86 5.05 5.39 2011 1.10 2.33 2.56

NAGARJUN A 2010 0.68 3.01 1.11 2011 1.04 2.12 1.14

Analysis : Capital structure ratio measure the relationship between owners fund and borrowed fund. After subprime crisis and slowdown of Indian economy sales of infrastructure construction company has slow down. This result in increase in Debt of the firm. Borrowing of debt within manageable proportion is good for the financial health of the firm as it gives the shareholders the benefit of leverage. The Interest coverage ratio of the firm has decreased from 2.04 times to 1.81times. This weakens the cushion available for lenders. Although the Debt Service Coverage ratio (DSCR) has declined marginally this decline is mainly on account of decline in profits.

VALUATION RATIO

HCC 2010 Earning yield Dividend yield P/E Ratio Book value Price to book value Ratio 1.79 1.07 55.84 2011 7.09 2.42 14.09

IVRCL 2010 1.14 NIL 2011 0.86 NiL

LANCO 2010 4.52 1.38 22.12 2011 9.04 0.92 11.06

NAGARJUNA 2010 5.45 0.78 18.34 2011 4.19 0.66 23.85

87.79 115.85 131.27 142.85 1.35 0.94

250.16 250.98 0.30 0.07

694.08 744.31 0.08 0.09

875.47 927.33 0.19 0.16

Analysis :

WORKING CAPITAL RATIO

HCC 2010 Current asset turnover Inventory turnover ratio Debtors turnover ratio Avg collection period Ceditors turnover Avg credit period 3.6 3.3 4.3 3.8 0.86 0.96 14.2 1 25.6 8 0.00 0.00 2011 0.79 0.87 12.7 4 28.6 5 0.00 0.00

IVRCL 2010 1.60 22.52 1.82 2011 1.58 20.70 1.79

LANCO 2010 1.35 13.17 1.66 2011 0.91 7.62 1.10

NAGARJUNA 2010 1.68 6.34 2.53 144.2 0 0.00 0.00 2011 1.50 5.66 2.16 168.9 2 0.00 0.00

200.54 204.18 0.00 0.00 0.00 0.00

219.34 332.52 0.00 0.00 0.00 0.00

Analysis :

Analysis of Cash Flow Statement

Net profit before tax & extra ordinary items is Rs. 111.67cr. Net cash flow from operating activities ( i.e after adjustment for tax, Dep & extra ordinary items ) is Rs 100.28 cr. This shows that company is able to manage positive cash flow from operating activity. The inflow of cash in operating activity is mainly from Interest/dividend received and Un realised foreign exchange gain & other receivable. Whereas outflow of cash in operating activity is mainly for interest payment. Company has made an investment in fixed assets, Purchase of Investment and also has done investment in subsidiary. Company has sold Inter corporate deposits. Overall company has used Rs. 695.85cr for investment activity. This shows that Company is focusing in Investment. HCC has used highest fund for investing activity. HCC has borrowed fund worth Rs.956.69 cr. It has paid interest worth Rs. 327.66 cr. HCC has paid dividend of Rs. 28.30 cr overall company received Rs 193.81 cr from financing activity. Company has borrowed money for long term so that is healthy for a company. Over all company has Rs 5.3 cr. as cash in hand.