Fundamental Analysis of HCC and its peers

Hindustan Construction Company

Founded : 27 January 1926; 98 years ago
Founder : Walchand Hirachand
Hindustan Construction Company Limited (HCC) is an Indian multinational
engineering involved in high-value projects that span across diverse sectors such
as transportation, power, marine projects, irrigation and water supply, special
buildings and industrial plants.
Objective : To be the industry leader and a market driven engineering
construction company renowned for excellence, quality, performance and
reliability in all types of construction.

Chairman : Ajit Gulabchand

Stake : 2117294 shares (0.14%)

CEO : Arjun Dhawan

Stake : nil

Growth:
(in cr.) Mar’23 Mar’22

Revenue 9,856 10,669

Profit/Loss -36 195

CAGR Net profit % 97.24 38.85

CAGR Sales % 2.16 0.60

Ratios:
P/E ratio Debt to equity Interest Return on
coverage ratio equity

mar’23 8.2 2.71 1.17 35.15

mar’22 -15.54 2.87 0.92 -32.69

mar’21 -2.15 5.22 0.31 -92.57

mar’20 -3.53 2.31 0.52 -14.31

mar’19 -0.89 2.16 0.80 -142.25

Peers of HCC
 1. Rail Vikas
Rail Vikas Nigam Limited (RVNL) is an Indian central public sector enterprise which
works as the construction arm of the Ministry of Railways for project implementation and
transportation infrastructure development. It was incorporated in 2003 to meet the
country's surging infrastructural requirements and to implement projects on a fast-track
basis as well as for creating a Railway equipment construction company.

Ratios:
P/E ratio Debt to Interest Return on
equity coverage equity
ratio

mar’23 10.07 0.87 3.86 19.39

mar’22 5.77 1.03 3.52 18.48

mar’21 6.58 1.02 41.25 16.56

mar’20 3.55 0.83 24.69 14.72

mar’19 - 0.69 15.01 15.64

2. NCC
Nagarjuna Construction Company Limited (NCCL), a construction and infrastructure
enterprise was established as a Partnership Firm in 1978, and converted into a Limited
Company on March 22nd, 1990. Presently, the Company is engaged into infrastructure
sector, primarily into construction of industrial and commercial buildings, housing
project, roads, bridges and flyovers, water supply and environment projects, mining,
power transmission lines, irrigation and hydro thermal power projects, real estate
development, etc.

Ratios:
P/E ratio Debt to equity Interest Return on
coverage ratio equity

mar’23 10.86 0.16 3.12 9.87

mar’22 7.40 0.23 2.29 8.61

mar’21 17.95 0.34 1.78 5.18

mar’20 3.35 0.38 1.81 6.85

mar’19 11.72 0.51 2.93 12.59

 3. PNC Infratech
PNC Infratech Limited (PNCIL) is engaged in India's infrastructure development through
the construction of highways including BOT (built operate and transfer projects) airport
runways bridges flyovers and power transmission projects among others. .The company
has now evolved into a leading highway development construction and management
company due to its integrated business model (i.e. in-house design engineering
construction operation).

P/E ratio Debt to equity Interest Return on

coverage ratio equity

mar’23 11.25 1.46 3.58 15.36

mar’22 11.45 1.32 3.82 15.99

mar’21 13.31 1.23 3.59 16.29

mar’20 4.39 1.28 2.62 21.52

mar’19 11.18 1.25 2.03 17.35

Analysis
 1. PE ratio:
The PE ratio is a valuing ratio that measures the firm's current share price
relative to its per-share earnings.
We're going to look at the PE of the companies mentioned above and compare
its individual PE with the Industry PE. When we compare the individual PE with
the Industry PE, we will come to know which stock is undervalued or which stock
is overvalued or which stock is fairly valued. The stocks that should ignite our
attention are those which are currently undervalued, and, therefore have good
future upside potential
Firstly, let's investigate the industry average. The nifty infra PE of the
Infrastructure Sector is 20.7. The industry average PE says that if a company in
the infrastructure sector earns 1rs per share, then an investor is willing to pay
20.7rs to buy the stock.
Now, let's take a look at the Individual PE of all the stocks and compare it with
the industry average PE to determine which of the stocks we've selected are
undervalued.

HCC - 8.2

Rail Vikas - 10.07

NCC - 10.86

PNC - 11.25

Industry PE 20.7

The stock with the lowest PE is the one which is most undervalued. In this case, the
stock with the lowest PE is HCC, closely followed by Rail Vikas and NCC. All these
stocks have PE ratios significantly below the industry average and are therefore
considered to be undervalued.

2. Interest coverage ratio ( ICR )

This is very important when it comes to stock picking. The next step in our
analysis is to investigate the current and historical interest coverage ratio of the
stocks. ICR is calculated by dividing the operating profit (or EBIT) by interest
expense, and measures the company's ability to pay off its interest on any loans
that have been taken.

An interest coverage ratio of more than 1.5 is usually considered to be good, but
it may vary from industry to industry. With ICR the higher the figure the better. A
strong ICR means that a company can fulfil their interest obligations provided
they have good earnings before interest and tax.
 year/company HCC Rail vikas NCC PNC

23 1.17 3.86 3.12 3.58

22 0.92 3.52 2.29 3.82

21 0.31 41.25 1.78 3.59

20 0.52 24.69 1.81 2.62

19 0.80 15.01 2.93 2.03

HCC’s current and historical ICR is quite below the standard 1.5 ratio. Whereas, it’s
peers show stable and above standard ICR. Of them all, Rail Vikas has the highest
ICR.

3. Return on Equity:
It calculates how much money is made based on the investors' investment in the
company. Investors want to see a high return on equity ratio because this
indicates that the company is using its investors' funds effectively.

While average ratios, as well as those considered “good” and “bad”, can vary
substantially from sector to sector, a return on equity ratio of 15% to 20% is
usually considered good.
With this ratio, it's a case of the bigger is better. However, consistency over the
past 5 years is arguably more important. Fluctuations are okay unless there is
too much deviation which will require further and deeper analysis.

HCC has the highest ROE in the last F.Y. however, data of the past 5 years
shows negative returns as well. Of its peers, both Rail Vikas and PNC have high
and consistent returns.

4. Debt-to-Equity Ratio

This is a leverage ratio that measures how much growth the company has
financed through debt. Hence, it is the ratio of total liabilities/debt to the equity on
the company’s balance sheet.

Typically, a debt-to-equity ratio of less than 2.0 is considered good. A higher ratio
could mean that the company has used too much debt to stimulate growth.

The DE ratio of HCC is dangerously above the ideal ratio of 2 which makes it a
very risky investment. Of its peers, NCC has the lowest DE ratio, followed by Rail
Vikas and PNC.
Conclusion: Based on the above analysis, Rail Vikas is the safest and best
investment option.