HCC auditors retain qualifications on Rs 1,184.80 crore assets

Hindustan Construction Company Limited said its September 30, 2026 standalone review retained qualifications over Rs 1,184.80 crore of balances: a Rs 1,032.26 crore investment in HICL and Rs 152.54 crore of net deferred-tax assets, for which auditors lacked sufficient appropriate evidence supporting management’s recoverability assessments.

Why did HCC’s auditors retain qualifications?

HCC’s auditors retained the qualifications because they could not obtain sufficient appropriate audit evidence on two management assessments at September 30, 2026. The first concerns a Rs 1,032.26 crore non-current investment, including deemed investments, in wholly owned subsidiary HCC Infrastructure Company Limited, or HICL, carried at cost. The second concerns Rs 152.54 crore of net deferred-tax assets.

The auditors said HICL’s consolidated net worth was substantially eroded at September 30, 2026, although HCC considered the investment fully recoverable. HCC based its assessment on factors set out in the financial-results notes, including an independent valuation report obtained for the year ended March 31, 2026. The auditors did not quantify an adjustment, saying they could not comment on the valuation support or any consequential effect on the standalone results.

For the deferred-tax assets, the auditors cited HCC’s history of losses and said they could not obtain sufficient appropriate evidence for management’s projected future taxable profits. Those forecasts support the company’s expectation that tax losses, unabsorbed depreciation and other taxable temporary differences can be utilised. The qualification addresses the carrying value of the Rs 152.54 crore asset, not a stated auditor conclusion that the entire amount must be written off.

What supports HCC’s valuation of its HICL investment?

HCC said its Rs 1,032.26 crore HICL investment is recoverable because its estimated recoverable amount exceeds the carrying value. The March 31, 2026 valuation report used significant judgements over HICL’s future business plans, potential favourable arbitration awards and the expected share of future revenues of erstwhile subsidiaries.

The investment, including deemed investments, was Rs 120.51 crore lower than the Rs 1,152.77 crore reported at March 31, 2026. HCC’s standalone balance sheet recorded total non-current investments of Rs 1,315.68 crore at September 30, 2026, compared with Rs 1,374.00 crore six months earlier. The HICL balance therefore accounted for most of the company’s non-current investment line.

HCC reported work on hand of Rs 12,901 crore at September 30, 2026, against Rs 12,971 crore at March 31, 2026. That measure records the value of work on hand and is distinct from the HICL valuation. The company also cautioned that quarterly margins can vary with the seasonal nature of its engineering and construction business, awards and claims, and revisions to estimated costs to complete.

How does HCC justify its deferred-tax asset?

HCC said its Rs 152.54 crore deferred-tax asset is recoverable because management expects taxable profits from unexecuted orders, future projects and the expected realisation of claims and arbitration awards. The asset mainly comprises deferred tax arising from carried-forward unused tax losses, unabsorbed depreciation and other taxable temporary differences.

The balance decreased by Rs 21.37 crore from Rs 173.91 crore at March 31, 2026. In the six months ended September 30, 2026, HCC recorded deferred-tax expense of Rs 20.46 crore, compared with Rs 15.54 crore in the corresponding six months of 2025. Current tax was Rs 4.57 crore in the latest half-year, producing total tax expense of Rs 25.03 crore.

HCC’s standalone net profit for the six months ended September 30, 2026 was Rs 73.86 crore, compared with Rs 75.26 crore a year earlier. Revenue from operations declined to Rs 1,877.55 crore from Rs 2,026.78 crore, while finance costs fell to Rs 162.40 crore from Rs 226.76 crore. These results provide context for management’s projections, but the auditors said they could not comment on adjustments, if any, needed to the deferred-tax asset.

Are HCC’s audit qualifications new in September 2026?

No, HCC’s November 5, 2026 review said the same two matters had been qualified in the limited-review report for the quarter ended June 30, 2026 and the audit report for the year ended March 31, 2026. The September 2026 report therefore continued qualifications over the HICL investment and deferred-tax asset rather than adding a new matter.

Subject to the possible effects of these two issues, the auditors said nothing had come to their attention that caused them to believe HCC’s standalone results did not comply with disclosure requirements or contained a material misstatement. The report was a limited review under Standard on Review Engagements 2410, which the auditors said has a narrower scope than an audit and does not provide audit assurance.

The auditors also referred, without modifying their conclusion, to Rs 62.58 crore of unbilled work-in-progress and Rs 24.21 crore of current trade receivables at September 30, 2026 from closed or substantially closed projects. HCC said these balances relate mainly to client-caused delays, design deviations and scope changes, and that negotiations, arbitration or litigation support management’s view that they are recoverable.

How did HCC’s operating results change in the latest quarter?

HCC reported standalone revenue from operations of Rs 895.82 crore in the quarter ended September 30, 2026, down from Rs 957.79 crore in the corresponding quarter of 2025. Net profit was broadly unchanged at Rs 36.78 crore, versus Rs 36.68 crore a year earlier, despite the Rs 61.97 crore decline in revenue.

The quarterly operating margin was 12.20%, compared with 16.10% in the September 2025 quarter, while net profit margin rose to 4.11% from 3.83%. Finance costs declined to Rs 82.60 crore from Rs 112.21 crore in the prior-year quarter. HCC reported a debt-equity ratio of 0.25 times at September 30, 2026, compared with 0.71 times a year earlier.

During the September 2026 quarter, HCC secured a new order worth Rs 524 crore and was the lowest bidder on projects valued at Rs 2,010 crore, including an HCC share of Rs 1,557 crore. Bids aggregating about Rs 34,805 crore remained under evaluation. These figures indicate the order and bid pipeline cited by management alongside its expectations for future projects and taxable profits.

Conclusion

HCC’s September 2026 standalone results continue to carry qualifications over Rs 1,184.80 crore of reported balances. Management considers the Rs 1,032.26 crore HICL investment recoverable using a valuation with assumptions on business plans, arbitration and former-subsidiary revenues, while it supports the Rs 152.54 crore deferred-tax asset with expected future taxable profits. The auditors said the available evidence did not allow them to support those assessments or determine any required adjustment.

The next disclosed milestone is HCC’s planned further debt prepayment of Rs 108 crore by December 2026, following Rs 100 crore prepaid during the second quarter of FY27. Subsequent results may also show whether progress on the Rs 12,901 crore work-on-hand balance, claims and arbitration awards, or taxable-profit generation provides additional evidence relevant to the recurring qualifications.