Hindustan Dorr Equity Research

Date of Research – 27 January 2016

Price – Rs. 14.20

About the Company

Hindustan Dorr-Oliver Limited (“Hinddorr” or the “Company”) diverse business activities and interests related to Hydro mechanical equipments, turn key solutions for steel fabrication, Hydro power developments, Real Estate, Leasing, Finance, Entertainment centers, Hotels and tourism.

The Company operates in 3 business sectors: Heavy Engineering cum construction, Real Estate and Infrastructure Projects.

The Company has successfully executed more than 55 hydro-mechanical contracts for Hydro-power & Irrigation projects across the country, valued at more than U.S. $500 million.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 454.26 293.65 379.08 248.17   
Expenses 501.39 363.24 755.66 283.55    
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) (47.13) (69.59) (376.58) (35.38)   
Depreciation 12.72 8.65 5.77 5.06   
Finance Costs 54.17 94.10 330.29 154.75    
Other income 3.70 28.06 17.18 3.95   
Exceptional items 76.31 –   
PBT (186.63) (144.28) (695.46) (191.24)   
Tax (58.35) (35.92) 110.16 1.36   
PAT (before Minority Interest and share of Associates) (128.28) (108.36) (805.62) (192.60)  
Profit/ (loss) attributable to Minority Interest –   
Share of profit / (loss) of Associates –   
Consolidated Profit / (Loss) for the year (128.28) (108.36) (805.62) (192.60)   

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio (10.38) (23.70) (99.34) (14.26)   
Net Profit Margin Ratio (28.24) (36.90) (212.52) (77.61)   

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Valuation Analysis

Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 454.26 293.65 379.08 248.17   
Growth (%) (55.54) (35.36) 29.09 (34.53)   
PAT (Rs. Cr.) (128.28) (108.36) (805.62) (192.60)   
Growth (%) –   
Earnings Per Share – Basic (Rs. ) (17.82) (15.05) (111.88) (27.00)   
Earning Per Share – Diluted (Rs. ) (17.82) (15.05) (111.88) (27.00)   
Price to Earnings –   

Dividend History

The Company has not declared dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Hinddorr’s average current ratio over the last 5 financial years has been 1.72 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Hinddorr’s average long term debt to equity ratio over the last 5 financial years has been 0.16 times which indicates that the Company operates with close to zero debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Hinddorr’s average interest coverage ratio over the last 5 financial years has been 4.61 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Hinddorr reported a promoter holding of 55.28 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 11.32 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.