Companies & Sectors
HCC open to resolve Lavasa issue with ministry

Third-quarter profit drops by half on project delays and slowing order flows

Nothing seems to be going right for Hindustan Construction Company (HCC) these days. In November, the environment ministry asked it to stop work on its project at Lavasa, order flows have dried up. Worse, it has had to bear the cancellation of a project worth Rs230 crore.

"In the third quarter we have not received any new order and an order worth Rs230 crore from NTPC was cancelled due to environmental issues," Vinayak Deshpande, chief operating officer, HCC, told Moneylife.

The company had received a contract to construct a barrage and desilting chamber for NTPC's Loharinag Pala Hydro Electric Power Project (4x150 MW) in Uttarkashi district of Uttaranchal.

"The company has revised its 2010-11 (April-March) order book target of Rs25,000 crore due to persistent delays in infrastructure and power orders from the government," Mr Deshpande said. HCC's current order book stands at Rs18,505 crore and it expects to reach at Rs20,000 crore by the end of this fiscal year.

On the Lavasa project, HCC says it is open to sort out issues with the Ministry of Environment & Forests (MoEF). "We would like to resolve all issues over the Lavasa project with MoEF. I hope we will resume work soon," Ajit Gulabchand, chairman, HCC, said.

The MoEF issued a stop-work notice to the company's Lavasa project, citing environmental problems and the absence of approvals for construction of the 5,000 acre luxury hill city project near Pune. Lavasa Corporation, a subsidiary of HCC, subsequently challenged the notice in court, saying the order was against all laws of natural justice.

However, Mr Gulabchand said that the company would not withdraw the case against the ministry. He also refused to comment on any notification from the MoEF to pay substantial penalty for violation of environmental laws.

HCC today reported a 46% fall in net profit for the October-December quarter to Rs7.94 crore from Rs14.75 crore, due to slower project executions. However, revenues for the quarter increased by 9% to Rs1,028 crore from Rs945 crore.
The company has a cash balance of Rs281 crore, while the debt pressure amounts to Rs3,500 crore.

"During the quarter, we have witnessed a slowdown in infrastructure activity. Several project orders have been deferred by various government departments and private firms due to delays in acquiring land and related clearances," Mr Gulabchand said.


JSW Energy to close deal for Canadian coal miner by end-February

Higher coal prices impact power producer’s bottom line; looks to acquire more coal assets to meet its requirements

JSW Energy expects to close the deal to acquire the entire stake in Canadian coal miner CIC Energy by the end of next month, according to a senior official at JSW Energy.

"We hope to seal the CIC Energy deal by 28th February. CIC Energy will hold a special meeting of their shareholders tomorrow (21st January) to get approvals," LK Gupta, joint managing director and chief executive officer of JSW Energy, said last evening.
Under the deal, JSW Energy will get coal mine assets, which have reserves of about 2.6 billion tonnes of thermal coal that is used primarily by power plants, in Botswana, Africa.

"The acquisition will help JSW Energy to meet our medium- and long-term raw material requirements for existing projects," N K Jain, vice-chairman of JSW Energy, said on the sidelines of a news conference to announce the company's earnings.

In November, JSW Energy agreed to buy CIC Energy for about $414.5 million after two months of exclusive talks. Earlier in April, it acquired a majority stake in South African Coal Mining Holding Ltd.

The company is looking to acquire coal mining assets to meet its requirements for thermal coal for its power projects. "We are open to all options to buying coal assets or form joint ventures to meet our raw material requirements," Mr Jain said.

JSW Energy also intends to increase its coal mining capacities at its mines in Indonesia and South Africa to ensure coal supply and reduce costs. "We want to buy coal mines in Indonesia and South Africa," said Pramod Menon, chief finance officer JSW. The company is planning to invest around Rs50 million for the expansion.
Rising prices of imported coal has impacted the company's margins in the third quarter ended 31st December 2010. JSW Energy reported a 25% drop in third-quarter net profit due to rising fuel costs. Net profit for the October-December period slipped to Rs153 crore from Rs205 crore in the corresponding quarter a year ago, while sales jumped 52% to Rs1,061 crore from Rs697 crore.
Fuel costs increased to Rs638 crore from Rs277 crore due to higher coal prices. "Due to floods in Australia (a major coal supplier) coal prices have shot up and the impact may continue in the fourth quarter too," Mr Jain said. "We could see stability in coal prices in the first quarter of the next financial year."


Q3FY11 analysis: Bajaj Auto records good profits, GAIL sales grow, HCL Tech margins lower

Bajaj Auto has recorded good results, but it has a tough road ahead; GAIL is expected to register increased gas transmission volumes going ahead; HCL Tech says it will focus on margins improvement

Bajaj Auto

Net sales came in at the lower end of the spectrum, while net profit was at the higher end. Realisations were up slightly higher than expected at 9% year-on-year (y-o-y). Margins did not dip as much as was being anticipated. Lower staff costs helped in this respect. Higher other income and a lower tax rate (from higher R&D expenditure) also helped in achieving good profits.

 The company has undertaken a price increase of Rs500-1,000 per vehicle on its Platina, Discover and Pulsar models from 1st January, both in the domestic and export markets. This should cushion the impact of rising raw material costs somewhat.

 Bajaj still aims to focus on its Pulsar and Discover models and does not seem too keen on new model launches. But it will launch a new Discover in April and a new Pulsar towards the end of the year.

Bajaj Auto Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net sales




Consumption of raw materials








Net profit




EBITDA margin (%)




 Over a three-month period the stock has not done so well. It has fallen from above Rs1,600 to current levels of about Rs1,300. While the stock took off around the time of the announcement of the third quarter results, it has since been coming off.

GAIL (India)

Sales came in at the higher end of expectations, while profits were in between. The negatives were higher other expenditure, lower other income (due to lower cash balances) and lower petrochemical volume.

 The positives were higher gas transmission volumes, which were above most brokers’ estimates despite lower KG-D6 volumes, 6.4% higher transmission tariffs and higher petchem and LPG realisations.

 Brokers continue to expect GAIL’s gas transmission volumes to be about 130 mcm/d next year, driven by higher LNG imports through Petronet LNG and Shell, recovery in gas production from the KG-D6 block, and commencement of gas production from ONGC’s marginal fields. However, these expectations seem to be at risk for now, especially the RIL ramp-up.

 Polymer sales were low in the quarter. GAIL sold 81,000 tonne of polymers in the third quarter compared to 107,000 tonne in the previous quarter and 120,000 tonne in the corresponding quarter a year ago. This has been mainly due to significantly lower demand and the shutdown of a plant for 20 days. It is expected that higher crude prices could drive up polymer EBIT in the near term.

 A sharp rise in LPG prices helped EBIT for the LPG and liquid hydrocarbons segment to rise 20% y-o-y.

 GAIL’s subsidy burden was at Rs420 crore, up from Rs350 crore in Q2FY11, but lower than Rs460 crore in Q3FY10.

GAIL (India) Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010









Net profit




Gas sales (mcm/d)




 The GAIL stock price has come off sharply after the quarterly results. It has underperformed the Sensex in the past three months. The stock is still trading at historic highs, as far as the price-to-book is concerned and at 10-year highs in terms of price-to-earnings.

 HCL Technologies

 Both dollar and rupee revenue and profit came in at the higher end of expectations. Revenue growth was led by IT (+7.3% q-o-q) and infrastructure (+9.4% q-o-q).

 In the verticals, retail (+15% q-o-q), energy and utilities (+14% q-o-q) and healthcare (+7.5% q-o-q) reported strong growth. Among the geographies, Americas (+5.8% q-o-q) and Europe (+7.1% q-o-q) grew below the company’s average, while other geographies grew 14.5% q-o-q.

 The forex loss was down to Rs13 crore. The management believes that there in probably one last quarter of forex losses on account of the large hedges it had taken three years ago. The market had expected this would be the last quarter.

 The EBITDA margin continued to fall and it was down 460 basis points y-o-y. The management seems to have taken a decision to focus on margins now. In its Q2FY11 earnings call, it had said that it would focus on margins improvement for two quarters and hence give up a little on growth. This is in contrast to the stance a few quarters before, when it said that it had consciously chosen to invest and sacrifice margins to drive growth. Clearly, growth and margins are an either-or choice for HCL Tech.

 The biggest problem for the company is that strong revenue growth has not translated into operating profit growth, which is why most analysts are finding it hard to digest the recent re-rating in the stock. For now, it seems to be running up on the management’s commentary that margins will go up in the next two quarters. However, this is expected to be at the cost of revenue growth.

In the BPO business, HCL Tech has guided that it will continue to make losses of about $6 million a quarter for the next four quarters.

HCL Technologies Q2 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Revenues (US$ mn)








Net profit




EBITDA margins




 The HCL Tech stock has done very well over the past three months, outperforming the Sensex by quite a margin. The stock continues to do well even after the results.

 (This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.)


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