Hindustan Construction Company Limited (500185) Earnings Call Transcript & Summary

Good evening, everybody, and welcome to HCC's Quarter 2 Financial 2026 Investor Call. I am Sandeep Sawant, I'll be your moderator for today's session. From the HCC leadership, we have with us today Mr. Arjun Dhawan, Vice Chairman and Managing Director; Mr. Rahul Shukla, Chief Financial Officer; Mr. Santosh Rai, Operations Director and Chief Business Officer. We will begin with a brief presentation on the -- from the management team, followed by a Q&A session. Over to you, Rahul, sir.

Thank you, Sandeep. Good evening, everyone. Welcome you all in this presentation. And a quick snapshot. HCC has been doing nation building since 1926. This is our centenary year. January '26, we are going to celebrate 100 years of proud existence. And during this tenure, we have done many landmark projects. To summarize, we have done more than 4,000 lane kilometers of highways, 400 kilometers of tunneling. We have contributed to 60% of India's installed nuclear capacity and 26% of India's hydropower capacity. We have got very well-diversified order book, which stands today INR 13,152 crores diversified across sectors as well as geographies, as you can see, with transport sector leading the pie, followed by hydro, nuclear and others. And geography-wise, Maharashtra is the leader, followed by other states like Bihar, Manipur. Key performance highlights for this quarter. Our stand-alone turnover stood at INR 958 crores vis-a-vis INR 1,200 crores last year. So we had mentioned that there is going to be tapering of turnover because we have completed many projects. And now we have embarked on the journey of new order intakes, which we'll brief you about. So this is the outcome of that. However, our profit stands strong. We are at PAT level of INR 36 crores and EBITDA margin of 16% in this quarter. We have secured three orders, two packages of Patna Metro underground metro project and one project from Hindalco Group for aluminum smelters expansion project and totaling to INR 2,770 crores. In addition to this, we are also L1 in INR 840 crores worth of projects. The bids which are under evaluation, which we have already made are amounting to INR 29,581 crores across various sectors, hydro transport and water. In addition to this, we also have robust bid pipeline, which are under tendering at various stages of tendering, amounting to around INR 57,000 crores. And we have been telling you about our deleveraging efforts. There also, we have achieved significant progress. And in this financial year till date, we have done INR 339 crores of prepayment to lenders in addition to their normal repayments, which keep on happening year-on-year. Additionally, INR 450 crores of repayments are already lined up, so which we try to -- we'll try to complete in this quarter. In addition to that, you are aware that we are also embarking on rights issue, almost INR 1,000 crores of rights issue we are planning to do. A portion of that will again be utilized for deleveraging. So, put together, considerable debt reduction is expected to happen in this financial year. Also, reduction of HCC corporate guarantee to prolific debt. We had talked about it in the past. Now we have achieved required significant amount of required lender approvals have been received. 97.4% lenders have approved it. Now final formalities paperwork for this CG reduction is going on, and this will also be completed very soon. I already talked about rights issue, so we'll move forward to the next slide. On the operations side, our Mumbai Metro project has recently been inaugurated by the Prime Minister. You might have seen pictures and all in the media. Tehri pump storage project, this is a 1,000-megawatt project that we are doing for THDC Uttarakhand. So third unit out of four unit has been synchronized. The fourth one is also on track for synchronization in the next couple of months. Vishnugad Pipalkoti hydroelectric project progressing quite well. Out of total 12.1 kilometer of TBM mining, we have completed 7.5 kilometer. Indore Metro project, which we had recently acquired is making steady progress, very well mobilized and works are going on. You will see some pictures in the coming slides. Bhivpuri pump storage project, which we are doing in JV with Tata Projects is also progressing well and excavation work across upper reservoir, lower reservoir, powerhouse, penstock, et cetera, penstock fabrication, all is moving well. Now we will move on to a few slides, operation updates. The pictures of Mumbai Metro slides. As I mentioned, Prime Minister has inaugurated this on 8th of October. So these are the pictures of CST station. Kalbadevi Station, Girgaon station and Grant Road station. So we have done four underground stations here. The work is completed. This is Tehri pump storage project, which I just talked about, pictures of the project, Unit # 7, which has just been synchronized with grid. Vishnugad Pipalkoti, a picture of HRT, which we are doing through tunnel boring machine and another picture of machine hall unit spiral casing. Indore Metro project, some piling works are going on at various locations. This contains seven underground stations. About Bhivpuri, excavation work is going on at various locations. On the financial side, as you can see, I have already mentioned key numbers. So total income stands at INR 975 crores. EBITDA is at INR 154 crores with 16.1% margin. Finance cost, you are seeing a reduction from last year because of the repayments that we have done. And PAT is at INR 36.7 crores. This is stand-alone numbers. And on a consol basis, income is at INR 983 crores. You are seeing a reduction from last quarter because earlier standard is also getting consolidated. Now it's mainly stand-alone apart from some numbers from HCC Infrastructure, which are contributing to consol. So, essentially, stand-alone and consol numbers are not very different now. EBITDA is INR 147 crores with 15.8% margin and PAT is at INR 47.8 crores. This is all from the presentation side. Now we are open to questions.

[Operator Instructions] Okay, first is Vaibhav Jain, you may please start.

Sir, my question is if the rights issue is undersubscribed, are the promoters planning to underwrite that fully, the undersubscribed portion also and then make sure it's complete?

So promoters have taken the responsibility of ensuring success of the rights. So, naturally, they will take care in case there is subscription.

Okay. Okay. But can we expect promoters to be the one infusing in case the rights are undersubscribed?

Yes.

Rajesh Bhandari, you can unmute and start.

About six months before, there was a talk from the government side also that there will be a number of nuclear power plants, government and also the private sector is planning. Is there any progress on that?

I mean, yes, the talks are there, but still things have to move on ground, but routine projects like which comes once in two years or something, they are moving on. Big fleet programs are yet to come.

And what normally is our share in the nuclear power plant, sir?

So, as we showed in the presentation, we have built around 60% of India's nuclear capacity. Right now, we are just completing a few of our engagements, and we are involved in two or three projects of theirs right now.

And basically, ours is the civil work?

Yes, we largely do the main plant civil building, which is the main reactor building, also some plant water intake system. Yes, and we are ramping up our capabilities to undertake more scope in these fields.

And when do we expect the interest amount to come down, sir, so that there is a better profitability?

So, Mr. Bhandari, it has already started coming down. And as I have already explained about the deleveraging plan in this financial year, you will see substantial reduction after Q1 FY '27 onwards.

So just to give you a sense, the goal for us is to -- at the end of March -- at the end of September 30, we had debt about INR 3,200 crores. We've had a prepayment of a further INR 150 crores. So, today, we are about INR 3,050 crores of stand-alone debt. We should expect by March 31 to have a further INR 1,000 crores to INR 1,200 crores of debt prepayment that will come from various sources, free cash flow settlements, arbitration basically proceeds and a portion of our rights issue proceeds should also basically go to prepaid debt. So if you look at from a pro forma standpoint, the actual interest expense on an annualized basis should come down by more than INR 100 crores. And obviously, that will have a partial bottom line impact for FY '26 because it's -- the deleveraging is happening substantially only for a portion of this year. But for the full year '27 onwards, we should have a much, much larger basic impact besides...

When do we expect -- yes, sorry, sorry.

Yes. Besides the fact that our investment-grade rating will continue to climb as a result of that and the ability for us to actually have access to greater basically opportunities as a result of the growth that we see is something that we expect as well.

Sir, I have two small questions. One is, when do we expect the rights issue?

You could expect it fairly soon. The Board appointed committee, they will communicate that in due course. And that's basically what I -- I would certainly expect that perhaps maybe this quarter is -- you would probably get some news about the rights issue.

You say, within December?

That's correct.

Okay. And one last question, sir. There was a news item that the ships will also have the smaller sized nuclear power plants.

Yes, that is the small modular reactors, SMRs.

Modular reactors. Should we be participating in that?

Yes. I mean whenever there is -- these opportunities will come, we will definitely participate on them.

Kapil Agarwal you may please start, unmute and start.

So, first question is regarding the L1 position, which we have given that INR 840 crores is the L1 position at the end of Q2. So this is the total L1 or this is the L1 we can say received in Q2 only?

No, this is the L1 position as of this quarter, and this is ongoing from a project where we are -- it's a hydropower project where we are the lowest bidder for some time. Conversion process is -- we are engaged with the client to convert this into an award.

So, actually, in quarter 1, our L1 position was INR 6,000 crores something. And out of that, I think INR 2,500 crores we converted in main order. So where -- what is the status of rest of the L1?

Yes. So one other project also, the client is into the decision-making process.

So it's like someone -- we can say some INR 2,000 crores, INR 3,000 crores of order from L1 has been canceled?

Not canceled. As I said, they are into the process wherein the client is still to make up -- they are in the decision-making process.

So that's why we have not mentioned it in our L1 position.

So we've been a little conservative in actually keeping that out of our L1 position, but we should expect that to effectively by the end of the fiscal year to actually have some clarity. But conservatively speaking, we've kept that out of our L1 communication at this point in time.

Okay. And our -- we can say available award amount is approximately INR 1,800 crores. So what is the state? What is the as on date total claim amount on a stand-alone basis?

So claim amounts are a large number, which we don't book in balance sheet. That's why we don't talk about that.

I understand, can put an idea that how much it would be approximately.

So they are almost INR 6,000 crores.

And as per our historic, we can say report, approximately how much of that ultimately converts into award.

So, typically, claim to award conversion range is around 55% to 60%.

So we can more than INR 3,000 crores of that claim may be converted in awards in future life.

I would not like to speculate that. It is -- I can just tell you the historical numbers.

Yes, just on the basis of historical number only. And one more thing I want to understand that when this claim will be converted in award, so at that moment, directly that will -- we can say reflected in our profit and loss account, and we will be -- data will be created or any expense also we book against that?

No, we don't book expense against that. That generally because expenses are already incurred in coaching while those claims are there.

If my understanding is correct, if I say that in future, if this INR 3,000 -- out of this INR 6,000 crores of claim, if INR 3,000 crores will be converted to award, then this INR 3,000 crores will be directly, we can say, hit our bottom line in future, if it will be done.

Right, right.

Okay. Okay.

I don't think it's realistic for you to assume the full INR 3,000 crores to hit our bottom line. But -- and again...

So, basically, when there are claims, right, some portion of claim we do book because we have to incur some expenses for converting those claims to award. So, for example, if there is INR 6,000 crores of claim, almost INR 1,500 crores is already there in the books. To that extent, when claim to award conversion will happen, that amount will -- that conversion will reduce by that amount. So, for example, if you are making an estimate that INR 6,000 crores claims are going to be converted into INR 3,000 crores of awards, almost INR 1,500 crores, INR 1,500 crores, INR 1,600 crores already booked. So additional INR 1,400 crores is something that you can see in terms of profit.

I think it would be fair to say that basically, there is a material impact whenever a claim gets basically converted to award. I think that what we have to, as management, responsibly convey is a broad sense of what the track record has been. And obviously, when a claim gets converted to award, the award also carries with it the interest that is accrued from the time that the claim was made. So that basically interest expense depending on when effectively the claim has been filed, generally ends up basically adding -- becoming some percentage of that award value. So, let's say, for example, and I'm saying this so that I can give you a sense of how conservative basically our conversion is. Generally speaking, on a principal basis, the conversion is generally, let's say, 25% to 35% plus the interest component. So, let's say, for example, after, you filed a claim, the award basically only comes two years later. It will come -- there's two years of interest that will be added on to that principal amount. So I think that if you go with, let's say, a 30% plus another, let's say, 15% to 20% of interest, it generally ends up becoming a 50% is generally what our track record has been on.

Okay. And we have for about INR 450 crores of debt repayment in Q3. So what will be the source of that?

These will be award receivables.

These will be award.

It's a combination of some free cash flow, some settlements, but largely effectively award arbitration awards that we have in our table.

Okay. Great. And what will be our utilization for this rights issue INR 1,000 crores to INR 1,100 crores?

Again, I've covered that just to be -- so we will not go into the specifics, but broadly, a material portion of the rights issue proceeds will go for debt prepayment. And a chunk of basically the rights issue proceeds will be retained for basically general corporate purposes, which largely for us is basically growth of our business in the next basically couple of years.

And the last question regarding this award available amount of INR 1,800 crores. So over we can say how much period we can -- we can encash or monetize this to repay our debt, like over a period of...?

I think that -- so it's a combination. In some cases where we want to end up prepaying bank debt, there are available guarantees provided by our banks to actually execute these petitions and to immediately repay debt. In some cases, there are settlements ongoing with clients that would like to effectively settle these amounts. Yes, we would maybe leave a little bit on the table there, 10%, 15%, perhaps in some cases. You've seen Vivad se Vishwas, which generally has ranged between anywhere between 65% to 85% of the award amounts have been paid out. But largely, effectively, we will be looking for a 1:1 ratio of actually ensuring that this money is utilized to immediately basically repay our banks. And if the -- in a particular awards case, we would like to effectively run its due course to the courts, then we're looking at effectively a three to about a three-year process, during which time we would have to be a little patient with our courts could be anywhere between three to four years before we will actually see the final disposal and the money is being paid for us.

Sourav you may please start. Unmute and please start.

First of all, my question is that the earlier investor has asked the question already. So why we are getting the order very slowly, sir? And what kind of order book we can expect as on March 2026.

Look, I think we have been -- we are targeting to have an order intake of -- and this is just for guidance purpose, I mean, north of INR 10,000 crores for this year at least. But see the kind of movement which is there into the overall market and the sectors where we are, we have been judicious in picking up the orders also. As of now, we have a lot of bids under evaluation, which I believe once they are cleared, we can see a much better performance. But I can right now say that it's basically a result of the bids what we have applied and there is a slowdown into the evaluation process of them. Some bids which we had done, they got canceled and they got retendered. So that has also taken some time. But we are pretty confident that the kind of bids we have done, we have submitted, which are under evaluation, we are not -- we will largely meet the target.

I'll add a couple of points here, which is very important. I think it's very, very easy in our business to take a job. And the one thing that we have -- now Rahul talked about the fact that we're 100 years old, I think that we have also had the wisdom of seeing cycles in our industry where there's irresponsibility in bidding in taking projects which are at a very, very high risk and a very, very low to sometimes even negative profitability with -- and as far as we are concerned, there is the way we will take things forward with a very high level of fiscal discipline to ensure that every job we take on and every client that we do that with is with the highest standards of not only profitability, but quality, safety, environment, et cetera, for us are very, very important standards. So I think that we see around us. Now on one hand, I think that we compete in areas where the competition is less. So, certainly, you won't see us participate in areas where the competition is higher. But again, we will continue to maintain that discipline. I will add one more point to this. There will be a little bit of lumpiness, at least in the short run for us because we are off of a low base. But at the same time, we've made a conscious decision that we will only actually do projects of a certain size. So, for us, our sweet spot basically being, let's say, INR 1,000 crores, let's say, INR 2,500 crores. We might need to be a little more patient with regard to the order acquisition that we do because we want to actually have fewer jobs that are larger where we actually have a higher degree of profitability and control. And so in that sense, until probably at least for the next year, 1.5 years, we just request your patience to kind of have our order booking in a very, very ambitious but yet responsible fashion.

Okay. Okay. Understood. So, Arjun sir, can we expect, sir, in FY '26 and FY '27, can we expect the order book to go to INR 30,000 crores.

I don't think it's unreasonable for you to expect that at all because -- I mean, just to give you a sense, Santosh, we've actually made bids, I think, so far of that are under valuation of about INR 30,000 crores already submitted. Some of these are mega projects. And some of these are mega projects, they're not more than two or three bidders. So taking a cake sometimes takes a lot of care and love. And I think that as far as we're concerned, our goal is to actually -- in our specialized area of focus, want to do that. So I don't think your number is unreasonable at all. And for us to be able to at least double our turnover in the next basically three years is not something that we're shying away from.

First of all, very nice presentation you made. Congratulations. Why this profit that total revenue has come down, sir? Is it only due to the repayment of leveraging or any other reason? Year-on-year this quarter, this Q2 has come down. Is there any specific reason for that?

I mean I think Rahul has spoken about the fact that the last year's order booking was weak. And so as a result of that, we have had -- and we've had also much, much faster execution of our projects. So a combination of both those factors has led to at least what we've communicated to all of you that this year will be a flat year for us. We've also -- basically on one of our projects had a routine TBM maintenance. It's our largest project, Vishnugad Pipalkoti, so this quarter has actually been marginally slower, but we're ahead of our budget. As far as we're concerned, we're quite pleased with the quarterly results. So, for this year, we've actually requested the investor community to bear with us with regard to the backlog not being as strong, but the goal is now from fiscal '27 onwards to really actually generate that growth that we've been talking about.

You mean to say even the Q3 and Q4 will be muted result?

I think that we -- the new projects that we have basically started, for example, Bhivpuri that we're executing for Tata Power, Indore Metro, Patna Metro, these are new projects which are just getting mobilized. Some of them have EPC payment schedules that then require for turnover to be recognized in a slightly deferred fashion, which is not commensurate with the work that's underway. So, yes, I mean, I think that we should basically complete the year fairly similar to where the previous year has actually been with fairly strong profitability and most importantly for us, with a significant deleveraging. And then I think that a combination of further deleveraging as we move forward in fiscal '27 along with growth is really what's going to have the double impact of actually seeing a tremendous basically bottom line impact along with the growth of the bottom line.

Okay, sir. So what sort of the price, is there anything you fixed for the right issue or what will be the investors...

I think that the committee will -- the committee once it deliberates on that, we'll communicate that as per the protocols. But we remain committed to our shareholders. And certainly, as far as I'm concerned, the goal is to always basically do things in a manner that allows for our shareholders to achieve the maximum benefit.

Mr. Sampat you can start please.

Sir, considering the pedigree and the difficult projects, projects that we have done in our past shows that we can really do very complex projects. So considering that when you bid for projects which are fairly complex, do the party, whether it is government or private, do they consider even at a higher-margin company like yours vis-a-vis other companies?

So I think when it comes to government projects, I think the responsibility that the Government of India has is to do two things. One is to qualify technically relevant parties. And then once it qualifies basically those parties, it ends up basically having to go with this L1 methodology in terms of pricing. Now that sometimes is unfortunate because what it does is open up the doors to irresponsible basically bidding. But again, I've said this before, HCC also competes in areas with clients where effectively the technical complexity is high enough to have the competition limited to only a few people with that basically competence. I think that we certainly look forward to the day where a mix of our technical experience and our record goes hand-in-hand with effectively the way a client measures price, but India and most Indian government entities don't have that. Private entities certainly do. Now for example, some of the private projects that we are executing, whether it's for Tata Power or whether it's for now Hindalco, I think that the entities with whom we have such a high level of credibility certainly look at the track record and the pedigree and not just simply basically the price, and that's a very good example of projects where we would perhaps not L1, but we actually ended up basically winning the job because of our pedigree. What you can expect to see is our increased exposure to pedigree private sector in the coming years, where today, our government basically jobs is nearly over 90%. I think you should -- you could probably end up seeing that sort of diversification to increase in the coming months and years.

And for private companies vis-a-vis government, what -- is there a difference in what we bid for in terms of margin that we pick.

No, I don't think that there is -- that goes -- that goes -- I think this is a question that if I was to very, very sincerely answer, it would go into sort of how we think about risk and our clients and our tendering strategy. So I would avoid basically going into the details. But broadly, I think we think about risk and return responsibly. I think that each client is different. Each project is different. The technical complexity is different. Obviously, there is no comparison with the sovereign government of India. So private sector as a rule, irrespective of how pedigree private sector is, will always basically, as a rule, trade at a premium to not trade at a premium, but effectively be -- you would command a slightly basically higher margin with private sector than you would with the Government of India is what is traditional. But then again, it depends on the client, depends on the complexity of the job, depends on the history with that client and the track record with that client. So I think every case is different.

Okay, sir. And going forward, say, in three years' time from now, what sort of -- from government and private right now, you said around 90%, 10% that is the ratio, what we expect or what is our aspiration in terms of breakup of the.

I mean look, I would like to see us at 70-30 within a relatively short period of time in the next basically two, three years. And I think that there are enough opportunities as India scales and the private sector also grows. I think for us, the history with having done work with the government is a function of the government's pipeline and the size of the projects. And as we see, I think, the private sector becoming much more ambitious and the size of the projects get to the point where they meet our size criteria, our quality criteria, I think you will see us probably do some of those jobs as well.