The company is coming out with the IPO of its 65% holding company Lavasa corporation by diluting 10% amounting Rs 2000cr, thereby creating value for its shareholders.

Lavasa - India'sfirst planned hill city is being developed by HCC spread over 12,500 acres located in the Western Ghats, on the banks of the Baji Pasalkar Reservoir behind the Varasgaon Dam (Varasgaon Dam & Reservoir) near Pune and Mumbai.

Based on sales, as on date, of 12msf (total projects of 200msf), Lavasa booked net profit of Rs 49cr (up 87% yoy) and revenue of Rs181cr (up 94% yoy) in 2QFY11. Lavasa has already started operations in its first township, Dasve, which is expected to be substantially functional by December 2011. It has also started working on its second township and has advanced plans for the next phase. The construction of the Lavasa project was started in
2006 and is likely to be completed in phases over a period of 15-20 years.

Lavasa is targeting IT, Education, hospitality, etc. and building a case for business and commerce for the city. The success of this would depend on the external infrastructure, grants from the Industry.

We have valued Lavasa on NPV basis, HCC's share comes out to Rs 1671cr or Rs 27.55 per share subjected to IPO pricing, while the market cap of HCC stands at Rs 4006.15cr. The company will derive nearly half of its value from its dream project of Lavasa.

24x7 park: HCC Real Estate Ltd has developed 24x7 Park, India's largest standalone LEED Gold certified green building located at the upcoming IT corridor - Vikhroli (West) in Mumbai. The 1.8 million square feet park offers commercial space, spread over its three towers, for service businesses companies and retail. The corporate park had been 65% pre-leased at an average rate of 65-70/sq. ft.

HCC has realized Rs 285cr (after settling debt) by divesting 74% stake in 24x7Park to IL&FS projects valued at an Enterprise value of Rs 775cr; thus valuing its 26% stake at Rs 93cr or Rs 1.53 per share.

The robust and well diverse order book of the company will ensure strong earnings, which is 5 times of its FY10 sales of Rs 3975.19cr.

other right which would entitle any person any option to receive equity shares after an initial public offer. All the holders of the DDCBs, other than the United Bank of India, have either agreed to prepayment of the DDCBs, or have given their consent to convert the DDCBs held by them into Equity Shares or nonconvertible debentures of the company, prior to the filing of the Red Herring Prospectus.

Nuclear Power- the next opportunity mapping for HCC:

HCC is making its presence felt in nuclear power as it has already built over 10 nuclear power reactors. The company has entered into strategic collaboration with EMEC and Halcrow of the UK, which will bring world-class design, safety and project/programme management experience to support the development of new civil nuclear projects in India.

The current nuclear power generation of the country stands at 4560MW which is expected to expand upto 20000MW by 2020. As the Indian economy continues to surge ahead, its expanding concurrently in order to support the growth rate. The demand for power is growing exponentially and the scope for growth in this sector is monumental. Out of total targeted capacity from nuclear during 2009-10, only 66% has been achieved which leaves ample opportunity for companies like HCC to have its slice of cake from highly growing nuclear power space.

Karl Steiner AG has expertise in constructing world-class `green' buildings and airport terminals (has build Terminal-3 at the Geneva airport). Karl Steiner's acquisition will allow HCC to undertake the development and construction of world-class residential and commercial spaces on a turnkey basis in India which is one of the fastest growing space in the country. Secondly, HCC will also use Steiner's expertise in getting building contracts for airports in foreign countries as well as domestically. The opportunity in the domestic airport space is huge, with estimated investments of about $9bn by 2013-14, of which, ~$7 billion is expected to come from private players under the public-private partnership (PPP) model. The company is currently evaluating three airports in three smaller cities in the country, which it is looking to build and operate. Karl Steiner complements HCC's infrastructure portfolio and enables it to bid in the space where not many infrastructure players are present. We believe, this would not only add higher margin contracts to its portfolio but would clearly differentiate HCC from its peers and build the right perception with the investors, as HCC would no more be a mere Irrigation, Hydro-Nuclear EPC player.

During the quarter ended on 30th Sept, 2010, the net sales of the company reported an increment of 13.6% to Rs 888.78cr as against Rs 782.47cr during the corresponding quarter last year, while on sequential basis it remained subdued by 10.5% from Rs 992.41cr.

On Operating front, EBIDTA of the company grew by 31% to Rs 119.39cr as against Rs 90.9cr during the corresponding period last year, largely on account of higher top-line numbers and improvement in operating efficiency. The Operating margins of the company during the quarter improved by 181bps to 13.43% from 11.62%. On sequential basis, EBIDTA contracted by 7% from Rs 128.83cr. However OPM saw an expansion of 45bps from 12.98%.

The net profit of the company saw an expansion of 120% to Rs 12.14cr as against Rs 5.51cr on account of stable depreciation cost and lower incidence of tax during the quarter, while the interest cost increased by 34.38% to Rs
67.07cr against Rs 50cr during last year, on account of higher debt of the company. On sequential basis the net profit fell by over 50% from Rs 28.31cr. The resultant EPS (Basic) for the quarter stood at Rs 0.2 against Rs 0.1 during last year and Rs 0.93 during last quarter.

On a standalone basis, the Company earned a gross income of Rs. 3642.23cr during FY10 as against Rs. 33372.59cr in the previous year, an increase of 8%.

On Operating front the Earnings before interest, depreciation and tax during FY10 were Rs. 440.9cr as against Rs 490.28cr during the previous year representing an decrease of 10%. The Operating margins of the company witnessed a contraction of 270bps to 12.1% as against 14.86% during the corresponding period last year on account of higher raw material cost.

The Net Profit After tax stood at Rs. 81.44cr as against the Rs. 125.35cr during the previous year a fall of 35%, as the profit for FY09 includes Onetime profit booked from sale of land amounting Rs 43cr on account of Bandra-Worli sea link. The depreciation cost for FY10 stood at Rs 113.9cr as against Rs 115.22cr last year. While interest expenses remains flat to Rs 205.16cr as against Rs 210.51cr during the corresponding period last year. The resultant EPS for the financial year stood at Rs
1.4.

As the Indian economy continues to surge ahead, its power sector has been expanding concurrently in order to support the growth rate. The demand for power is growing exponentially and the scope for growth in this sector is monumental. India's total installed capacity of electricity generation has expanded from 1,05,04-5.96 MW at the end of 2001 1,59648.46 MW currently. In fact, India ranks sixth globally in terms of total electricity generation. This capacity is likely to grow to more than 3,00,000 MW by the end of 12thfive year plan ending 2017

India has road network of around 3.3 million kilometers which being second largest road network in the world. The main concern remains the fact that only about six percent of all roads are relatively well developed.

One of the significant developments in road infrastructure in India is the National Highways Development Projects (NHDP) involving a total investment of Rs 220500cr (exchange rate Rs 45/$) up to 2012. The recent cabinet approval for phase NHDP-V and NHDP-VI are estimated at Rs 58500cr. Projects are being financed using multiple methods, including tax inflow, foreign aid and private sector participation. Increasing private sector participation and BOT contracts are expected to drive road construction.

The Government of India introduced policies aiding public private participation (PPPs) to bridge the gap between demand and supply of urban infrastructure.

Any delay in execution of the projects may have its impact on the cash flow of the company, thereby impacting the profit earning ability of the company.

The debt to equity ratio of the company stands at higher end at 1.92 times which is continuously rising, the company's business model is highly capital intensive, thereby high debt will act as hindrance for further leveraging and also results in higher interest outgo and lower profit.

As the company is typically involved in projects with high gestation periods (like transportation & power), earnings arising out of the ongoing projects also hit their financials quite late. Moreover the projects are also more exposed to various risks arising with the passage of time.

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