HCC: Cashing out and balancing

Hindustan Construction Company (HCC), through its subsidiary HCC Real Estate, has sold its 74 per stake in ‘247 Park’ to IL&FS Milestone fund. The project, which is valued at an enterprise value of Rs 775 crore, has a debt component of Rs 380 crore. Of the balance value of Rs 395 crore, HCC will receive around Rs 292 crore in cash.

Analysts say this is a positive move for the company. The market, too, has reacted positively to the announcement. The stock rose 1.53 per cent to Rs 113. 247 Park is a corporate park located in Vikhroli (West) on LBS Marg, an upcoming business hub in Mumbai. After the first phase is completed, the second phase, valued at Rs 330 crore, is expected to take off from October 2010, with a developable area of 1.55 million sq ft and a leasable area of 0.75 million sq ft. Now, the company can use these funds by investing them back in the second phase, or paying off some debt. In either scenario, it will help the company, reckon analysts.

In case they invest in the project, it will help the company manage its debt-to-equity ratio, which was at 1.63 times in FY10. The second option will not only help reduce the debt-to-equity ratio but interest cost as well. The debt to equity remained on the higher side, even though it has been brought down from the 2.63 times level of the previous year, courtesy the qualified institutional placement of Rs 480 crore in July 2009.

Moreover, the company also transcends into a different plane with the Lavasa, a prestigious hill station project in Maharashtra. Its order book registered a 25 per cent compounded growth from 2001 to 2008, and 36 per cent growth from 2008 till 2010. The order book to revenue ratio also stands at a healthy 5.2 times, the highest since 2001-02, indicating traction. Revenue visibility is a big deal in the real estate and construction industry, and the company is beginning to demonstrate that.