One of the leading engineering, procurement and construction (EPC) players in the infrastructure space, Hindustan Construction Company (HCC) Limited has an engineering heritage of nearly 100 years. It has executed the majority of the country’s landmark infrastructure projects, having constructed 25 per cent of its hydropower generation capacity, over 3,800 lane km of expressways and highways, more than 335 km of tunnels and over 365 bridges. In the past few months, the company has established a strong foothold in the market by securing a number of contracts. The financial restructuring and the release of the arbitration award amount have helped the company pare its debt.
Diversified portfolio
HCC’s portfolio is spread across various sectors and comprises power (hydro, nuclear and thermal), transportation (roads, bridges, metros and ports), water (irrigation and water supply) and industrial projects. Geographically, the company has a presence across several states and is the most active in Jammu & Kashmir which accounts for around 23 per cent of its portfolio, followed by Maharashtra (19 per cent) and Uttarakhand (18 per cent). On March 31, 2018, its order book stood at Rs 191.88 billion, as against Rs 203.9 billion as on March 31, 2017. Though the transport sector continued to dominate, its share declined from 59 per cent in 2016-17 to 48 per cent in 2017-18. The case with the water sector is similar; its share declined from 10 per cent in 2016-17 to 8 per cent in 2017-18. The share of hydro, however, remained the same.
HCC Concessions Limited (HCON), a subsidiary of HCC Limited, is involved in the development of large public infrastructure assets through public-private partnerships (PPPs) with a focus on the transportation sector. HCON developed a portfolio of six road assets under the National Highways Development Programme, being executed by the National Highways Authority of India. Of the six assets, HCON divested its stake in two road projects in 2015-16 and is currently managing four assets, which have a combined project cost of Rs 49 billion. As of 2016-17, HCON’s portfolio included three contiguous four-laning projects of 250 km in West Bengal (National Highway [NH]-34), of which two are operational. The fourth asset is the operational six-lane elevated highway connecting Delhi and Faridabad on NH-2. A major achievement in project execution was the successful commissioning and toll commencement of its largest project, the Rs 17.2 billion Farakka-Raiganj highway on October 19, 2016.
Recent contracts
HCC bagged a number of projects across infrastructure sectors during 2016-17 and 2017-18. The most recent contract is in a joint venture (JV) with the UAE’s Al Fara’a for the Pune metro rail project. The Rs 4.84 billion contract is for the construction of eight elevated metro rail stations on Line II (east-west corridor) of the project. This is the second order HCC received from Maharashtra Metro Rail Corporation Limited for the Pune metro rail project. The earlier order was to construct nine elevated stations on Line I.
Another contract in the metro rail segment was awarded by Bangalore Metro Rail Corporation Limited in July 2017. The Rs 7.97 billion contract, in a JV with URC Construction Private Limited, is for the construction of a 6.34 km long elevated corridor and five elevated stations between the HSR Layout station and the RV Road station. This is a part of the fully elevated 18.82 km RV Road-Bommasandra section of Phase II of the Bengaluru metro rail project.
Due to its expertise in building various modules of hydroelectric projects, in August 2017, HCC secured a contract for a hydropower project worth Rs 8.1 billion from Jammu & Kashmir State Power Development Corporation Limited. The contract is for the construction of the 93 MW (3×31 MW) New Ganderbal hydropower project on the Sind river in central Kashmir on an EPC basis.
A diversified player in the infrastructure space, the company was awarded two construction contracts last year – one for a dam and the other for a cable-stayed bridge – totalling Rs 10.42 billion. The former project involves the construction of the Parwan gravity dam and an 8.47 km long tunnel for irrigation and water supply in Rajasthan. The second contract, awarded by Ircon International Limited, is for the construction of a cable-stayed bridge (including its approaches) across the Anji Khad river in Jammu & Kashmir.
Financial performance
On the financial front, the company’s standalone profit after tax increased by 31 per cent to Rs 0.77 billion in 2017-18. The growth in turnover was, however, flattish at around 8 per cent.
The company’s earnings before interest, taxes, depreciation and amortisation reduced from Rs 8.1 billion in 2015-16 to Rs 7.53 billion in 2016-17. HCC was the first company in the country to adopt the government’s Scheme for Sustainable Structuring of Stressed Assets. Its entire funded exposure of Rs 51.07 billion was divided into two debt classifications – sustainable debt of Rs 26.81 billion and unsustainable debt of Rs 24.26 billion. A portion of the unsustainable debt was converted into equity 
share capital so as to allow lenders to jointly own around 23.6 per cent of HCC ’s expanded share capital. Coming as a breather, the scheme substantially reduced interest outgo and repayment obligations. The company faced a challenging period due to a slowdown in the infrastructure sector in the past and delays in payment of its legitimate dues by government agencies.
The Cabinet Committee on Economic Affairs announced a slew of initiatives to deal with claims of players in the construction industry against major government bodies and public sector undertakings. The key aspect of the measures for construction companies was the directive to release 75 per cent of the arbitration award amount against a margin-free bank guarantee. To this end, HCC has already secured favourable arbitration awards which will yield a cash inflow of Rs 25.99 billion as 75 per cent of the awarded amount. It has received Rs 14.16 billion till date, of which fresh arbitration awards worth Rs 9.77 billion were received in 2017-18.
Conclusion
A geographically diversified portfolio and strong experience in key Indian states allow the company to make strategic investment plans. The future prospects of the company are set to improve with benefits accruing from the new arbitration guidelines, faster clearances, inflow of new orders, conducive government policies, industry expectations of a revival in traffic growth and an overall positive sentiment for macro-economic recovery.