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Infrastructure and E&C: Sector Outlook
The FY12 outlook for the sector remains bright. Revenue growth is expected to pick up in
FY12, as order inflow should improve on revival in industrial capex and improved ordering
activity in the road sector.
Revival in execution to drive revenue growth: We expect execution-related challenges
like clearances and land acquisition will subside in FY12 for projects which were awarded
some time back. Government focus is also likely to increase after a lull in activity for the
last 12 months or so.
Infrastructure orders to pickup pace from low base: We expect the government to
speed up the awards in the road sector to meet its ambitious target of 20km/day to some
degree. While the government’s ambition of ordering out 15,000km may be ambitious,
even 40% ordering will mean US$13bn worth of orders. Similarly, Powergrid (PWGR IN,
Neutral, TP: Rs91, Covered by Jeff Evans) will start ordering out for its US$20bn
investment outlay for the XIIth five-year plan following its recent fund raising by FPO.
Rising interest rates weighs on corporate capex: We anticipate the capex cycle will
pick up in 2HFY11 as GDP growth remains strong and there has been no major capex
over the last three years. However, high inflation and the spectre of rising interest rates
continue to weigh on sentiment. We believe demand strength will outweigh concerns
around interest rates impacting capex plans of companies.
Operating margins to remain largely stable, rising interest rate to hurt midcap
companies: We do not expect prices of key commodities – steel and cement – will go up
sharply from current levels. This should ensure that the operating margins for the
construction companies will remain at current levels +/-50bps. Midcap companies have a
net debt: equity of 1:1 and hence are more susceptible to rising interest costs than larger
players like L&T, BHEL and other capital goods names.
All eyes on XIIth plan outlay: The government has already kicked off the process of
finalising XIIth plan outlay. Clarity on US$1tn expenditure will be a major event to watch
out for in FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infrastructure and E&C: Sector Outlook
The FY12 outlook for the sector remains bright. Revenue growth is expected to pick up in
FY12, as order inflow should improve on revival in industrial capex and improved ordering
activity in the road sector.
Revival in execution to drive revenue growth: We expect execution-related challenges
like clearances and land acquisition will subside in FY12 for projects which were awarded
some time back. Government focus is also likely to increase after a lull in activity for the
last 12 months or so.
Infrastructure orders to pickup pace from low base: We expect the government to
speed up the awards in the road sector to meet its ambitious target of 20km/day to some
degree. While the government’s ambition of ordering out 15,000km may be ambitious,
even 40% ordering will mean US$13bn worth of orders. Similarly, Powergrid (PWGR IN,
Neutral, TP: Rs91, Covered by Jeff Evans) will start ordering out for its US$20bn
investment outlay for the XIIth five-year plan following its recent fund raising by FPO.
Rising interest rates weighs on corporate capex: We anticipate the capex cycle will
pick up in 2HFY11 as GDP growth remains strong and there has been no major capex
over the last three years. However, high inflation and the spectre of rising interest rates
continue to weigh on sentiment. We believe demand strength will outweigh concerns
around interest rates impacting capex plans of companies.
Operating margins to remain largely stable, rising interest rate to hurt midcap
companies: We do not expect prices of key commodities – steel and cement – will go up
sharply from current levels. This should ensure that the operating margins for the
construction companies will remain at current levels +/-50bps. Midcap companies have a
net debt: equity of 1:1 and hence are more susceptible to rising interest costs than larger
players like L&T, BHEL and other capital goods names.
All eyes on XIIth plan outlay: The government has already kicked off the process of
finalising XIIth plan outlay. Clarity on US$1tn expenditure will be a major event to watch
out for in FY12.
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