Hindustan Construction Co reports 15.3% revenue decline in FY2016 and 1.9 pp EBITDA Margin growth from 12.0% to 13.9%

28 Apr 2016 • About Hindustan Construction Co ($HIN) • By InTwits

Hindustan Construction Co reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

EBITDA Margin is expanding: 13.9% in FY2016 vs. 12.0% in FY2015 vs. 5.3% in FY2012
EBITDA Margin is quite volatile: 13.9% in FY2016, 12.0% in FY2015, 8.8% in FY2014, 5.3% in FY2013, 5.3% in FY2012
Hindustan Construction Co has high CAPEX intensity: 5 year average CAPEX/Revenue was 11.8%. At the same time it's a lot of higher than industry average of 8.1%.
CAPEX is quite volatile: 7,199 in 2016, 7,309 in 2015, 7,134 in 2014, 13,458 in 2013, 15,119 in 2012
The company has potentially unprofitable business model: ROIC is at 6.9%
It operates with medium-size leverage: Net Debt/EBITDA is 8.8x while industry average is 8.1x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Hindustan Construction Co ($HIN) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	81,576	85,100	96,683	103,530	87,681	-15.3%
SG&A					500
EBITDA	4,343	4,533	8,524	12,444	12,206	-1.9%
Net Income	-5,301	-4,825	-2,774	-1,595	-3,181	99.5%
Balance Sheet
Cash	5,789	7,671	6,869	3,606	3,178	-11.9%
Short Term Debt	35,999	20,587	29,271	36,439	38,383	5.3%
Long Term Debt	51,638	79,100	82,229	82,362	71,908	-12.7%
Cash flow
Capex	10,395	10,541	12,853	9,475	10,089	6.5%
Ratios
Revenue growth	14.0%	4.3%	13.6%	7.1%	-15.3%
EBITDA growth	-30.3%	4.4%	88.0%	46.0%	-1.9%
EBITDA Margin	5.3%	5.3%	8.8%	12.0%	13.9%	1.9%
Net Income Margin	-6.5%	-5.7%	-2.9%	-1.5%	-3.6%	-2.1%
SG&A, % of revenue					0.6%	0.6%
CAPEX, % of revenue	12.7%	12.4%	13.3%	9.2%	11.5%	2.4%
ROIC	1.9%	1.3%	4.8%	7.4%	6.9%	-0.5%
ROE	-54.2%	-75.6%	-51.8%	-29.0%	-35.6%	-6.5%
Net Debt/EBITDA	18.8x	20.3x	12.3x	9.3x	8.8x	-0.5x

Revenue and profitability

Hindustan Construction Co's Revenue dropped on 15.3% in FY2016. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased slightly on 1.9 pp from 12.0% to 13.9% in FY2016.

Net Income marign decreased on 2.1 pp from -1.5% to -3.6% in FY2016.

Capital expenditures (CAPEX) and working capital investments

The company's CAPEX/Revenue was 11.5% in FY2016. Hindustan Construction Co's CAPEX/Revenue decreased slightly on 0.88 pp from 12.4% in FY2013 to 11.5% in FY2016. It's average CAPEX/Revenue for the last three years was 11.3%.Hindustan Construction Co invested a big chunk of EBITDA (82.6%) to CAPEX which didn't stop revenue from falling.

Return on investment

The company operates at low but positive ROIC (6.94%) and negative ROE (-35.57%). ROIC showed almost no change in FY2016. ROE decreased on 6.5 pp from -29.0% to -35.6% in FY2016.

Leverage (Debt)

Company's Net Debt / EBITDA is 8.8x and Debt / EBITDA is 9.0x. Net Debt / EBITDA dropped on 0.5x from 9.3x to 8.8x in FY2016. Debt decreased on 7.2% in FY2016 while cash dropped on 11.9% in FY2016.

Appendix 1: Peers in Construction & Engineering

Below you can find Hindustan Construction Co benchmarking vs. other companies in Construction & Engineering industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Larsen & Toubro ($LTOD)	23.5%	16.1%	14.2%	6.0%
Electrosteel Castings ($ECS)	12.4%	5.3%	11.1%	-2.3%
Median (2 companies)	17.9%	10.7%	12.6%	1.9%
Hindustan Construction Co ($HIN)		4.3%	13.6%	7.1%	-15.3%

Top companies by EBITDA margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Electrosteel Castings ($ECS)	9.9%	8.9%	14.4%	12.8%
Larsen & Toubro ($LTOD)	14.6%	13.9%	13.1%	12.8%
Median (2 companies)	12.2%	11.4%	13.8%	12.8%
Hindustan Construction Co ($HIN)	5.3%	5.3%	8.8%	12.0%	13.9%

Top companies by CAPEX/Revenue, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Larsen & Toubro ($LTOD)	11.5%	10.6%	8.2%	7.0%
Electrosteel Castings ($ECS)	11.9%	13.7%	6.6%	5.8%
Median (2 companies)	11.7%	12.1%	7.4%	6.4%
Hindustan Construction Co ($HIN)	12.7%	12.4%	13.3%	9.2%	11.5%

Top companies by ROIC, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Larsen & Toubro ($LTOD)	11.1%	9.6%	8.6%	6.8%
Electrosteel Castings ($ECS)	4.3%	3.4%	6.3%	5.0%
Median (2 companies)	7.7%	6.5%	7.5%	5.9%
Hindustan Construction Co ($HIN)	1.9%	1.3%	4.8%	7.4%	6.9%

Top companies by Net Debt / EBITDA


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Electrosteel Castings ($ECS)	9.0x	11.6x	6.9x	8.0x
Larsen & Toubro ($LTOD)	4.8x	5.8x	6.9x	7.4x
Median (2 companies)	6.9x	8.7x	6.9x	7.7x
Hindustan Construction Co ($HIN)	18.8x	20.3x	12.3x	9.3x	8.8x

Hindustan Construction Co stock price chart

Hindustan Construction Co financials

mln.	FY2010	FY2011	FY2012

Revenue	39,752	70,965	81,444
EBITDA	5,654	6,230	4,343
Net income	58.000	-646.200	-5,300.900
CAPEX	13,097	15,673	10,395
Debt	53,657	68,146	87,636
Cash	2,470	6,014	5,789

About Hindustan Construction Co

Hindustan Construction Company Limited, together with its subsidiaries, primarily provides engineering and construction services in India. It constructs dams, barrages, tunnels, underground power stations, and surface power stations, as well as water conductor systems, such as surge shafts, pressure shafts, and penstocks; and undertakes hydro power projects on engineering, procurement, and construction basis. The company also constructs nuclear reactor buildings, underground crude oil storage cavern, and pot shell structure and civil works; and develops specialized systems to offer solutions for projects, such as urban water supply systems, pumping stations, water treatment plants, and lift irrigation for the rural sector. In addition, it is involved in building transportation projects comprising rapid transport systems, bridges, highways, road, and rail bridges, as well as residential and office complexes in real estate sector. Further, the company specializes in the turnkey development of new buildings and refurbishments, as well as offers real estate development and construction services. Additionally, it provides information technology (IT) solutions for the infrastructure industry; enterprise resource planning solutions; and business IT solutions and process consulting for organizations. Hindustan Construction Company Limited was founded in 1926 and is headquartered in Mumbai, India.