Investors in Hindustan Construction Co. Ltd. should gird for long days in court after hopes of a quick out-of-court settlement with India’s environment ministry in a dispute over alleged violations at its Lavasa township near Mumbai were dashed late Wednesday.
The environment ministry had asked Lavasa to stop work on the luxury residential and commercial project in a hilly region near Mumbai.
Analysts say they are having a hard time keeping track of the twists and turns in the case and investors should steer clear of the stock until the stop-work order issued last year by the ministry on Lavasa Corp. Ltd., a unit of Hindustan Construction, had been lifted permanently.
On Thursday, shares of Hindustan Construction gave up most of the previous session’s 4.1% gains and were 2.5% down at 36.75 rupees ($0.80) in mid-day trade. The 30-share benchmark Sensex was up 1.1%.
The construction firm had jumped to a one-month high of 38.1 rupees on Wednesday after the company said it wanted to withdraw its court petition challenging the environment’s ministry’s stop-work order and pursue a settlement of the dispute with the ministry on its own. But the company changed its mind after the court said the stop-work order will continue to be enforced even if Lavasa withdraws the petition and reaches an agreement with the environment ministry as there also other litigants involved.
The saga began on Nov. 25 last year, when the environment ministry asked Lavasa to stop work on the 5,000-acre luxury residential and commercial project in a hilly region near Mumbai, alleging that the projected flouted environmental norms. Lavasa Corp. Ltd, which is a unit of HCC, challenged the order in the Bombay High Court and said it had not violated any rules.
Subsequently, the ministry appeared to have softened its stance on the project. On Jan. 18, the ministry told the Bombay High Court that although the project had caused some environmental damage, the ministry was willing clear the project if Lavasa paid a hefty fine, given that the developer was creating jobs in the area.
As Lavasa has now declined to withdraw the petition, the matter stays in court. If all this sounds a little complicated, it is because it is. The upshot is the cranes and bull-dozers at Lavasa continue to stand idle and the company has been losing 50 million rupees ($1.1 million) a day since the ministry issued the stop-work order, according to Lavasa’s legal counsel.
The delays will add further pressure on the parent company’s fragile finances, said Shailesh Kanani, an analyst with Mumbai-based Angel Broking. The company, like others in the sector, is in any case seeing a sluggish growth in infrastructure orders at the same time as rising raw materials costs squeeze profit margins.
In addition, the Lavasa unit is saddled with debt of about 17 billion rupees ($377 million). Hindustan Construction was hoping to list Lavasa last year to raise some much-needed funds but with the company now mired in legal troubles, Mr. Kanani does not expect Lavasa to be able to list for at least another year.
Fuente: India Real Time