Analysis of Construction Company, India

Analysis of aspect Company, IndiaAnnual Report Analysis ofHindustan spin Company throttleTejas VaidyaConstruction Sector AnalysisConstruction in India has become a lynchpin contributor to the economy of India in the recent years. It ranks 2nd in commerce and contribution to the economy only after the agriculture celestial sphere. This sector besides ranks 2nd when it comes to FDI inflows. However the last three years suck in been a thought-provoking period for this sector. This sector has now come into the forefront with the Make in India campaign being driven actively by the Prime Minister of India. let out aspects of the sector ar as followsThe Indian Construction is valued at about USD 126million and visualizeed to grow to USD 140million by 2017.The Construction industry contributes about almost 10% to the gross domestic product, a contribution of Rs. 6708 billion in the year ending March 2013. 50% of the edifice industry demand comes from fundament and the rest come s from industrial activity, railways, residential and commercial widenment combined.Being a labour intensive sector, it employs 3.5crore people including direct and indirect jobs.The governing has highlighted infrastructure as a find out sector to turn around and sustain the momentum of GDP branch that had slowed down in the last 3 years.This industry is skewed in footing of major players there are a handful of companies from both public and private sector. The public sector players are IRCON, NBCC, RITES and EIL. The major private sector players are LT, HCC, MN Dastur Co and Ansals.There is immense scope for development in this sector and it is seen as a booming sector, primarily due to the following reasonsThe estimated shortfall for housing in urban India is 18.8million units whilst that in rural India is 47.4million units.The current standards of infrastructure are unable to sustain the growing population and there is hence a dire need for re-gene dimensionn and renovation to meet demands in urban areas.The Government of India has released a naked as a jaybird urban development campaign that will help develop 100 smart cities across India. Cities will be supported to gain investments from private capital and make effective use of palatopharyngoplasty model to inflect their infrastructure and services.100% foreign direct investment (FDI) is permitted in construction and infrastructure development projects. Apart from this, a high degree of recent restrictive advancements have been seen in this sector which include the followingJawaharlal Nehru National Urban Re naked as a jaybirdal MissionThe National Urban Housing and Habitat Policy, 2007Real estate Investment Trusts (REITS) Infrastructure InvestmentReal Estate Regulation Development Bill, 2013Model State Affordable Housing Policy for Urban Areas, 2013About HCCHidustan Construction Company was established in 1926 by Seth Walchand Hirachand Doshi. It is an integrated group that operates in the areas of construction, infrastructure development and real estate. Being one of the largest private sector construction companies in India, it has been involved in projects ranging from highways and bridges to hydel-power projects to nuclear facilities.HCCs standalone turnover stands at Rs. 4,113.5 crore and net profit stands at Rs. 80.6 crore, after reporting losses for the last two years.Financial Report AnalysisHCC has a multitude of ongoing, new and completed projects in this year across various states in India and in like manner in Bhutan. A total of 202 projects are listed. The state wise spread of the projects is as followsChairmans Address to ShareholdersThe chairman starts by highlighting the unholy state of the economy, of governance and of the infrastructure sector over the last two years. However he shares a spirit of optimism over the formations of the stable NDA government. He states that the GDP growth has been languishing at the sub 5% levels this year 2013-14. A s a result the construction sector is likewise badly hit. Overall, HCC works in a discreditable framework in India since the sector that is most affected by economic slowdown is infrastructure. The chairman, Ajit Gulabchand lists the problems endemic to the construction industry and they areEnvironmental clearances to new infrastructure projectsLack of effective decision makingNon-payment of claims by government public sector clientsThe chairman also highlights the performance of HCC as a standalone guild which has been impressive amidst turbulent economic conditions. Turnover has increased 7.2% to Rs. 4113cr and has seen an increase for 67% to 640.7cr. The fraternity has been successful in driving down costs. A key project Lavasa is back on track and taken up by Steiner AG, a wholly owned subsidiary which has remained profitable since the last 3 years. The chairman ends with share his optimism with respect to a stable BJP-led NDA government under Prime Minister Narendra Modi. steering Discussion AnalysisIn this section various aspects of the phone line and business environment of HCC, both internal and external is discussed.The macro economic reviewThe performance of the economy coming into the year 2013-14 is analysed. Chart A highlights the GDP growth rate in the 5 preceding years. Chart B highlights the growth of the construction sector. It is detect that current account deficit as a ratio to GDP has narrowed significantly and there as also been an increase in foreign inflows.Indias Infrastructure SectorThe current situation of the infrastructure sector is analysed. It is observed that the sector faces several challenges in spite of long term demand being consistent. The lethargic decision making of the old government has negatively affected the sector. Infrastructure financing need to improve significantly by dealing effectively with internal and external factors. Delays are also observed on 15-20% projects along with rise in number of projects w ithout commissioning date.HCC- Key developmentsTraditional focus on transportation, power and piss supplies has continued. Areas like industrial construction projects, complete engineering, procurement and construction (EPC) have been explored. The improvements implemented in efficiency of project operations, inventory management, structure of the organisation and liquidation of receivables have been noteworthy. The high society has also undertaken re-evaluation projects to expedite slow-moving financially challenging projects.Performance HighlightsThe company has been successful in maintaining its top line at par with 2012-13 amidst adverse economic, financial restrictive environment primarily due to its thrust on cost control. Revenue from operations stands at Rs. 4113cr up 7.2% while EBIDTA stands at Rs. 641cr up by 64.1%. The company has also successfully paid of its dues from the Corporate Debt Restructuring package availed last year.Investee CompaniesIncludes HCCs portfoli o of business by dint of subsidiariesInfrastructure focuses on investment and asset creation through PPPs. During 2013-14, the business focused on executing existing projects and raising capital.Real Estate The focus area of this business has been the development of complete integrated townships. wide-cut Service Contractor An extension of engineering construction division driven primarily by Swiss acquisition Steiner AG.IT Expansion into IT done with Highbar Technologies.Engineering Construction DivisionThis division is distributed across power, transport, water and industrial sectors.TransportTwo major contracts were win viz. tunnel T49 in Udhampur Srinagar Baramulla railway line and RCC duad over river Sone in Bihar. In addition progress is satisfactory on Delhi metro projects won earlier.PowerThis sector has been affected in terms of new undertakings however projects under execution performed well. This includes Hydro and Nuclear Power projects.Water Supply IrrigationThe company has completed water supply projects in Gujarat. New contracts secured at Yettinahole, Karnataka as well as in Pune.IndustrialIncludes civil and fabrication contracts in Hindalco-Orrissa, Reliance-Jamnagar, ISPRL-Visakhapatanam and Padur, Karnataka.Marine WorksA contract for reconstruction of a dry bobfloat and wharves is progressing satisfactorily in Mumbai.Infrastructure DivisionHCCs infrastructure business was handled by its wholly owned subsidiary HCC Infra. Projects were majorly developed either on PPP or on DFBOT mode. The companys entire portfolio comprises NHAI highways with concession periods ranging from 18 years to 30 years. The asset portfolio of HCC is mature which it plans to monetise to raise capital. The asset portfolio is also briefly touched upon.Real Estate DivisionThe real estate division is further divided into two businesses, Lavasa and commercial real estate. Having received environmental clearances, 2013-14 saw the development at Lavasa go into the ne xt phase. A restructuring meant all employees involved in construction were shifted to Steiner India and Lavasa remained a pure developer. center has been on collecting and salesat Dasve and Mugaon. Dasve in ready withal operational basic infrastructure. Work on infrastructure and utilities development of the second town Mugaon has gathered pace. Gadle Dam, built to supply water for the construction of Lavasa neared 90% completion.Commercial real estate has also seen satisfactory progress with the work on 247 Business Square and 247 Business Avenue, Vikhroli Corporate common land Phase II and Mean Township Developers projects progressing. The company also won bids for Parleshwar CHS, Mumbai and Charosa Wineries.Steiner AGHCC acquired the remaining 34% stake in the Swiss company which makes Steiner AG a 100% owned subsidiary. Profit level has been maintained as last year at CHF 8.2million. Key undertakings of the company post acquisitions are described. Steiner launched its new co rporate identity and design in September 2013. The brand essence Taking the lead together which is being implemented on all channels.Highbar TechnologiesFocus has been on IT implementation from point of view of business transformation, rather than just technology implementation. 14 new customer added to make the count of customers 78. Multiple awards have been won. Expertise developed in areas of ERP, business intelligence and CRM.Operations SupportThe operations of the different divisions are supported by Management Systems, Intellectual shoes Rights, Branding and Human Resources. Integrated Management System (IMS) adopted based on standards based on standards stipulated by ISO 90012008, ISO 140012004 and OHSAS 180012007 to streamline processes. Re-certification audit for ISO 9001 2008, ISO 140012004 and BS OHSAS 180012007 conducted to underpin compliance. HCC continued to create and protect intellectual property through multiple mediums. On the branding front, HCC continued with it brand enhancement initiatives in both external and internal mediums. Brand value was enhanced by standardised brand practices and delivery of big and complex infrastructure.Awards won by HCCDuring the year the company won CIDC Vishwakarma Award 2014 for Best Project for Pir Panjal Tunnel, Dun Bradstreet Award for Social Impact project of the year 2013 for Nimoo Bazgo Hydel Power Project and Construction Week Award.Human Resources hearty improvement initiatives like annual turnover per employee, upper ceiling on indirect/ preliminary expenses at the sites and Head Office cost being hold in to a percentage of turnover were undertaken. The organisation structure, work and people allocation was re-calibrated to further improve efficiency and focus on various business areas. The company is also working towards implementing performance-oriented culture.Financial ReviewIn this section the abridged profit and loss accounts have been illustrated. Key financial aspects have been highlig hted along with key financial ratio. A detailed analysis of the financials has been included in the later part of this report.ReferencesAnnual Report AY 2013-14 http//www.hccindia.com/pdf/HCC_Annual_Report_FY2013_14.pdfhttp//makeinindia.com/sector/construction/http//en.wikipedia.org/wiki/Construction_industry_of_Indiahttps//www.equitymaster.com/research-it/sector-info/construction/Construction-Sector-Analysis-Report.asphttp//www.indiainfrastructure.com/reportpdf/research_catalogue.pdfK.J. Somaiya Institute of Management Studies Research Page 1