Hindustan Construction Company : HCC Lavasa

It has been a Roller coaster ride for HCC.

During the mad bull run, the stock touched Rs.130 in Nov 2007. Following the meltdown, it fell to Rs.14.70 on 9-March-2009, recovered back to 78 in 15-Jan-2010,then on steadily fell down to Rs.17.35 on 23-Dec-2011.


Unlike Pantaloon Retail story, where the opening up of FDI could turn the table around, the problem with HCC is characterisic of India : Political nexus and violation of rules. Here are a few:

First the Background of HCC:
(1) HCC has got 67 subsidaries to operate in diverse segments - primarily in infrastructure.
(2) HCC embarked upon Lake city in Himachal Pradesh called "LAVASA" which is/was the brain child of Union Agri Minister Sharad Pawar. HCC Hariman Mr.Ajit Gulabchand 'got' all the approval's to start this project.

(2a) Infact a company called Yashomala Leasing and financing was merged with LAVASA, leading to issuance of shares to Sharad Pawar's son-in-law Sadanand Sule and daughter Supriya Sule.
(3) LAVASA hill city is a man made city build by one company - HCC.
(4) LAVASA is on 13,226 acres, which is about one fourth of Mumbai.
(5) LAVASA is to be built in four phases, with first phase to be completed in March 2012 and last phase in 2021.

LAVASA could be imagined to something like a quasi-Venice in Italy, quasi-Genting Highland in Malaysia.

(6) LAVASA was so promising that many banks have invested in convertible debentures of HCC valuing HCC @ 12000 Cr. Some of these banks are : J&K Bank - 100 Cr, Axis - 225 Cr, Bank of INdia - 150 Cr, Allahabad Bk - 100 Cr, Indus Ind bank - 50 Cr, Andhra Bank - 25 Cr, United Bank of India - 50 Cr, ICICI Bank - 250 Cr.


HCC's Problems:
(1) Environment ministry has objected and suspended the works @ LAVASA stating that environment and ecosystem would detoriate at the site. More over HCC has not taken adequate precautions / preventive measures to protect the environment. Otherwise, HCC has ignored sustainable development path.
(2) Due to ths suspension of LAVASA-Phase I which is worth Rs.2800 Crores, Rs.55 Crores is the loss the company is incuring every month.
(3) Proposed IPO of LAVASA aimed to collect Rs.2000 Cr, didnot materialize due to hostile capital market condition.
(4) Total debt in HCC's balance sheet as on 31-March-2011 is Rs.7382 Crores.
(5) HCC's interest cost stood at Rs.107.4 Crores which is 13% of its net sales ( not net profit ) of Rs.828 Crores in Q2 Sept 2011.
(6) Interest costs increased by a whopping 60% due to incresing interest rates and FCCB repayment.

Only Way out:
(1) HCC succesfully repaid FCCB worth Rs.598 Crores on 1st April 2011. Thank god. Had they delayed the payment, dollar appreciation would have costed them 20% more.
(2) 67 subsidaries of HCC hold the key. Selling some of them could release cash.
(3) Recently, HCC ofloaded 14.5% of HCC Concesions to Xander Group for Rs.240 Crores, valuing this subsidary alone at Rs.1650 Crores. Similar such transaction could reduce debt.
(4) But the real solution is getting the environment clearance and completing the project or getting out of the project after Phase 1.

Investors need to think twice before investing in HCC. It could be a High Risk-High return proposal. Remember high risk before investing.