ICRA stated that the rating reaffirmation factors in Hindustan Construction Company’s (HCC) adequate order book position of Rs 9,773 crore (order book to construction income ratio of 2.1 times) as on 30 September 2024, providing near-term revenue visibility and diversified order book across segments, geographies and clientele.

The rating derives comfort from the improvement in operating margin from the core engineering, procurement and construction (EPC) business in FY2024 and H1 FY2025.

Improved operating leverage, presence of price escalation clauses in most of the contracts, along with lower sub-contracting dependence supported margin expansion in FY2024 and H1 FY2025.

ICRA expects the company to ramp-up its gross billing from the core EPC business with inflow of new orders, while maintaining adequate operating margins.

ICRA has factored in the likely support to the liquidity profile from the planned fund infusion through Qualified Institutional Placement (QIP), which is expected to be completed by the end of December 2024.

The rating favourably notes HCC’s long track record of operations of over nine decades, supported by an experienced management and demonstrated capabilities in executing relatively complex tunnelling and hydro projects.

The rating, however, is constrained by HCC’s high TOL/TNW, which stood at 5.1 times as on 30 September 2024 (FY2024: 7.2 times). The same is likely to improve over the medium term but will remain elevated in the near term.

HCC’s receivables and work in progress remain elevated due to ongoing arbitration/claims pending with the clients. It has been able to manage the working capital requirements, partly by availing an extended credit period from suppliers/sub-contractors and mobilisation advances from clients.

Going forward, any material deterioration in the working capital intensity from the anticipated levels can impact its liquidity position and will be a key rating sensitivity.

HCC is the flagship company of Hindustan Construction Company Group (HCC Group) and is involved in engineering and construction of infrastructure projects such as dams, tunnels, bridges, hydro, nuclear and thermal power plants, expressways and roads, marine works, water supply, irrigation systems and industrial buildings across the country.

The scrip declined 1.34% to currently trade at Rs 44.04 on the BSE.