HCC shares surge over 7% on BSE: What’s behind the rally? Check target, stop loss and more

Hindustan Construction Company (HCC), an Indian engineering and construction firm, experienced a notable uptick of over 7 per cent on the BSE, surpassing ₹50 as the trading session began on Wednesday, June 12.

This surge was triggered by Elara Capital's initiation of a 'Buy' rating for HCC, with a target price of ₹63, indicating a potential 58 per cent increase from the previous day's closing price of ₹39.8. 

The stock had already rallied by 15 per cent on June 11. The rise in HCC's shares coincided with the government's announcement of a new housing scheme under the Pradhan Mantri Awas Yojana (PMAY) Urban. This scheme, aimed at providing interest subvention for the urban poor and middle class, is slated to conclude in December 2024

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HCC share price target

According to Elara Capital, the target for HCC's share price is ₹63, implying a 24 per cent upside from the current price of ₹50 as of June 12, 2024. HCC's share price was trading in the green, up 7.95, at ₹50.80, on June 12, at 11:35 a.m., on BSE.

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Elara Capital is optimistic about HCC's prospects, citing significant opportunities and extensive company experience. "Given the past experience and large opportunity landscape, we remain hopeful of a turnaround in financials from FY25 and further strengthening from FY26," the brokerage firm stated.

The brokerage firm forecasts a standalone revenue and EBITDA CAGR of 20 per cent each during FY24-27, with an earnings CAGR of 50 per cent due to lower interest costs. Elara Capital expects inflows of ₹9,000 crore in FY25, increasing by 15 per cent annually for the next two years. They believe that partnerships with private equity investors will enable HCC to bid for long-term PPP projects, reducing strain on its balance sheet​​.

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Government's Housing Scheme and its Impact

The Pradhan Mantri Awas Yojana (PMAY) aims to provide affordable housing to economically weaker sections (EWS), low-income groups (LIG), and middle-income groups (MIG) through financial assistance and subsidies for construction or renovation. The new housing scheme under PMAY (Urban) is expected to revive construction under the older scheme, focusing on completing already sanctioned homes rather than approving new ones.

So far, 11.8 million houses have been sanctioned under PMAY, with 8.35 million completed. Additionally, under PMAY (Gramin), the rural development ministry had set a target to construct 29.5 million houses by March 31, 2024. As of November 2023, over 29.4 million houses had been sanctioned, with 25 million completed.

Both housing schemes have been the government's flagship welfare programs, resulting in the completion of 42.1 million houses for eligible poor families over the past decade. This renewed focus on affordable housing is expected to positively impact the construction industry, further boosting companies like HCC, which are involved in infrastructure development.

Major Projects and order pipeline

HCC's extensive experience executing complex and high-value projects positions it well to capitalize on India's large infrastructure opportunities. The company holds a significant share in India's hydropower and civil nuclear power capacities, making it a strong contender for upcoming projects in these sectors. HCC is in the L1 position on orders worth ₹45 billion, with bids under evaluation totalling ₹104 billion and a project pipeline of ₹464 billion across power, hydro, roads, nuclear, and transportation sectors. 

Elara Capital anticipates order inflows of ₹90 billion in FY25, with a growth rate of 15% annually thereafter.