Multibagger: Hindustan Construction Company stock zoomed 1113% in 4 years! Is there more upside ahead?

Hindustan Construction Company (HCC), a penny stock, has delivered substantial returns to its investors in last four years. From June 2020 to now, the stock price has soared over 1113 percent, rising from ₹4.4 in June 2020 to approximately ₹53.4.

This remarkable growth reflects the company’s strong performance and market confidence, making it a standout performer in the stock market. Investors who recognised its potential early on have seen their investments multiply significantly, showcasing the stock's impressive turnaround and upward trajectory. Such extraordinary gains not only reflect its past success but also highlight its potential as a high-return investment opportunity over the years.

Meanwhile, over the past three years, the stock has surged by an impressive 391 percent, climbing from ₹10.87 in June 2021 to its current levels.

In recent times as well, HCC has continued to demonstrate strong performance, gaining 153 percent over the past year and 83.5 percent year-to-date in 2024. The stock has delivered positive returns in three out of the six months so far this year. In June, it rallied over 41 percent following a 2 percent decline in May. Prior to that, it showed robust gains of 20 percent in April but declined 21.2 percent in March and 8.7 percent in February. Notably, January 2024 saw a significant increase of 53.4 percent in the stock's value.

Moreover, the stock also hit its 52-week high of ₹53.40 in intra-day deals today, June 25, 2024. It has shown strong resilience by surging over 199 percent from its 52-week low of ₹17.84, recorded on July 26, 2023.

About the firm

Hindustan Construction Company Limited provides comprehensive engineering and construction services across India and globally. The company specialises in a wide range of projects including roads, highways, bridges, railways, metro rails, ports, and marine structures. It also undertakes the construction of dams, tunnels, powerhouses, and various underground works, as well as projects in water supply, irrigation, sewage treatment, and hydrocarbon plants. Additionally, the company offers services in toll management, real estate development, insurance, information technology consulting, and operation and maintenance of roads. Established in 1926, Hindustan Construction Company Limited is headquartered in Mumbai, India.

Earnings

In the March quarter (Q4FY24), Hindustan Construction Company reported a 22.12 percent increase in consolidated net profit, amounting to ₹246.2 crore compared to ₹201.6 crore in the year-ago period. Total income for the quarter was ₹1,813.05 crore, down from ₹2,437.23 crore a year earlier, while total expenses decreased to ₹2,073.33 crore from ₹2,398.69 crore.

For the fiscal year 2023-24, HCC recorded a consolidated net profit of ₹529.42 crore, a significant turnaround from a net loss of ₹52.51 crore in FY23.

Brokerage views

Recently, Elara Securities initiated coverage on Hindustan Construction Company with a ‘buy’ rating, being optimistic about its potential resurgence. Elara set a target price of ₹63 per share, indicating an 18 percent upside from current levels. The brokerage highlighted HCC's significant improvement in financial health, with standalone debt reducing from ₹6,200 crore in FY22 to ₹3,400 crore in FY24.

Elara forecasts a robust growth trajectory for HCC, expecting standalone revenue and EBITDA to achieve a 20 percent CAGR during FY24-27E, driven by lower interest costs contributing to a 50 percent earnings CAGR. Positioned well to capitalise on the ₹1.5 lakh crore nuclear opportunity, HCC is anticipated to secure order inflows of around ₹9,000 crore, slightly below its guidance of ₹10,000 crore, with expected annual inflows increasing by 15 percent over the next two years.

Meanwhile, ICICI Direct has also observed strong momentum in Hindustan Construction Company, noting that its stock price is currently trading above short-, medium-, and long-term moving averages. The company has shown robust trailing twelve months (TTM) EPS growth and continues to demonstrate strong annual EPS growth trends. These factors indicate a positive market sentiment and a bullish outlook for HCC, supported by its consistent financial performance and growth trajectory.

However, its weaknesses, as per ICICI Direct, are:

- Red Flag: High interest payments compared to earnings

- MFs decreased their shareholding last quarter

- Declining net cash flow: The company is not able to generate net cash

Investing in stocks with smaller market capitalisation offers the potential for significant returns due to their lower price points, but it comes with inherent risks. Small-cap stocks often grapple with liquidity challenges, resulting in lower trading volumes compared to larger firms. Moreover, they may face less stringent financial reporting requirements and oversight, potentially exposing them to market manipulation and fraudulent activities.

These factors contribute to heightened volatility in small-cap stocks, increasing the risk for investors. Effective navigation of these challenges requires thorough research and the implementation of robust risk management strategies. By adopting these measures, investors can better handle the uncertainties associated with small-cap stocks and safeguard themselves against potential losses.

Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.