HCC shares: 65% upside ahead? Stock up 15% today. What Elara says

Shares of Hindustan Construction Co Ltd (HCC) rallied 15 per cent in Tuesday's trade, as Elara Securities initiated coverage on the stock with a 'Buy' rating, suggesting 65 per cent potential upside on the counter.

"Once the toast of India’s infrastructure space, Hindustan Construction Company (HCC IN) saw its fortunes wither away post FY11 due to the policy paralysis and delayed decision-making by the government, which also dealt a serious blow to the construction industry. After a decade and a slew of measures, including debt restructuring, dispute settlement and non-core asset monetization, the company is ready to flex its muscles," Elara said.

Elara Securities said HCC’s 10-decade old experience of executing in-house complex & marquee projects, 26 per cent of hydro power capacity and 60 per cent share of India’s civil nuclear power capacity positions it to capture on Rs 1.5 lakh crore nuclear opportunity.

"Stars align for growth: debt burden starts to lessen peak consolidated debt including accrued interest was Rs 12,200 crore in FY15, which reduced by 71 per cent to Rs 3,500 crore in FY24. Peak standalone debt of Rs 6,200 crore in FY22 fell 45 per cent to Rs 3,400 crore in FY24 and stabilized," it said adding that HCC's standalone finance cost declined to Rs 540 crore in FY24 against Rs 950 crore in FY22.

Elara said HCC's net worth should turn positive from FY26 -- it hit a peak negative of Rs 1,300 crore in FY21.

It is optimistic that the company will move into a sustainable high growth phase thereafter. The Vivaad Se Vishwas Scheme should help in faster recovery of outstanding awards worth Rs 2,300 crore in favor of HCC. The brokerage suggested a target of Rs 63, suggesting a 65 per cent upside over June 7 price.

On Tuesday, the stock was up 14.65 per cent at Rs 45.62 on BSE. Elara's target price still suggests a potential 38 per cent upside ahead.

"The historical average award to cash conversion time is four years with average collection at 87 per cent of claim amount. Recent credit ratings upgrade and removal of restrictions on bank guarantee limits allow HCC to bid for new contracts. It is in L1 position on Rs 4,500 crore orders, bids under evaluation of INR 104bn, and pipeline of Rs 46,400 crore across power, hydro, roads, nuclear and transportation," Elara said.

The domestic brokerage sees Rs 9,000 crore inflows in FY25 against guidance of Rs 10,000 crore, up 15 per cent per annum for the next two years.