HCC spurts on closing sale of Farakka-Raiganj Highways to Cube Highways

Hindustan Construction Company (HCC) rallied 6.04% to Rs 5.44 after the company said it closed sale of Farakka Raiganj Highways to Cube Highways at enterprise value of Rs 1,508 crore.

HCC Concessions, the infrastructure development arm of HCC Group, completed its 100% sale of Farakka-Raiganj Highways ("FRHL") to Cube Highways and Infrastructure II ("Cube Highways"). The announcement was made after market hours yesterday, 22 September 2020.

FRHL, which forms part of the main arterial highway in West Bengal, is among the largest Public Private Partnership (PPP) projects in India, with an enterprise valuation of Rs 1,508 crore, comprising debt of Rs 905 crore and an equity valuation of Rs 603 crore.

Cube Highways is a platform controlled by I Squared Capital, Abu Dhabi Investment Authority and IFC. The total expected pay-out of Rs 603 crore to HCC Group includes cash pay-out of Rs 270 crore which combines equity consideration and contractor payments; Rs 233 crore of hold backs to be released on the completion of dispute resolution with NHAI; up to Rs 100 crore of earnout is payable in 2023 contingent on traffic projections (the traffic in FRHL has already returned to pre-COVID levels).

Additionally, as part of the agreement with Cube, HCC Group will be entitled to a revenue share from FRHL over the entire concession period, which could be material in nature, and the details of which will be specified on completion of the ongoing conciliations with NHAI.

The enterprise value of Rs 1,508 crore also excludes a structure section of the project, which was descoped by NHAI, and for which Cube has offered a contingent pay-out. A successful closure with NHAI in the coming months of its tolling right confirmation, would entitle HCC Group to additional consideration estimated at Rs 200 crore.

HCC Concessions and FRHL have been in active discussions with NHAI to conciliate all claims and disputes totalling approximately Rs.3,000 crore, which are expected to conclude in Q3 FY21. The completion of conciliation process will not only release capital to the Group from the NHAI, but also the amounts conservatively held back by Cube.

On a consolidated basis, HCC reported a net loss of Rs 409.26 crore in Q1 June 2020 compared with a net profit of Rs 99.74 crore in Q1 June 2019. Net sales slumped 40.1% to Rs 1,675.88 crore in Q1 June 2020 over Q1 June 2019.

HCC is engaged in engineering and construction activities. The company's segments include engineering and construction, infrastructure, real estate, comprehensive urban development and management, and others. The firm provides engineering and construction services for projects across sectors, such as power, transportation, water and industrial projects.

The stock is trading 59.12% below its 52-week high of Rs 13.31 hit on 27 November 2019. The scrip has soared 51.11% from its 52-week low of Rs 3.60 hit on 25 March 2020.

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