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India Equity Research Reports, IPO and Stock News
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CONSTRUCTION
During FY11, construction sector witnessed sluggish order inflow activity
due to several issues. Order inflow is expected to increase from FY12
onwards due to higher allocations seen in infrastructure segment as well as
measures taken by government to enhance fund availability with the sector
such as setting up of infrastructure debt fund, hike in FII limit for
infrastructure debt bonds etc Along with this, NHAI has also resolved a large
number of issues such as land acquisition, DPRs, viability study of projects
etc which had impacted the award process in FY11. Thus, with continued
thrust of government, we expect sector to be one of the key beneficiaries
going forward.
We expect excellent revenue growth for companies during Q4FY11 and full
year FY11. Operating margins for the companies are likely to be maintained
due to variable pricing clauses. However, net profit growth is expected to
be impacted by higher interest outgo due to liquidity crunch and hike in
interest rates.
We continue to remain positive on the sector based on revenue visibility,
strong order book as well as stable operating margin scenario. Stocks are
currently trading at very attractive valuations and are already factoring in
concerns related to lack of order inflow and higher interest rates. Our top
picks in the sector would be IRB Infra, IVRCL infra, BGR Energy, Pratibha
Industries and Unity Infra etc Key risks to our recommendations would
come from lower than expected revenue execution and further delay in
order inflows.
Key highlights during Q4FY11
Order inflow remained sluggish for FY11
Order inflow during FY11 remained sluggish for most of the companies in construction
sector due to issues related to land acquisition, environmental clearance delays
or cancellations, corporate governance, lack of funds for the state government entities
etc. We had expected order inflow revival to happen by Q4FY11 but it was witnessed
only for select companies. However, FY12 looks promising in terms of order
inflow for the sector with increased activity to enhance project awards being witnessed
from NHAI. Government has also enhanced allocation for infrastructure sector
specifically irrigation, water supply and housing during union budget 2011-12.
Measures such as setting up of infrastructure debt fund, hike in FII limit for infrastructure
sector bonds and allowing NHAI, HUDCO to issue of tax free bonds is expected
to ease fund availability with the sector and hence can aid the order inflow for FY12.
Revenue growth likely to be healthy
With strong order books of construction companies, revenue growth for Q4FY11 and
full year FY11 is expected to be strong. Current order books provide visibility for next
2 years. Though order inflow in FY11 was lower than expectation, it may have some
negative impact on FY12 revenues if order inflow doesn't ramp up in next six
months. We expect revenue for Q4FY11 for our coverage universe to grow by 11%
YoY and 35% QoQ (excluding Punj Lloyd).
Operating margins to be maintained
Operating margins are expected to be stable for FY11 in comparison with FY10 due
to diversified business model and variable pricing clauses. Companies having higher
proportion of fixed price contracts may witness some margin contraction due to hike
in commodity prices. However, we expect margins to correct by nearly 25-50 bps for
FY12 to factor in increased competition as well as hike in the commodity prices seen
in past few months.
Higher interest outgo may impact net profit margins
Net profit growth of the companies is expected to be led by healthy revenue growth
as well as stable to improved operating margins. However higher interest outgo may
impact the net profit growth. Interest costs have witnessed an increase in past few
quarters and with high working capital requirements of the construction sector, we
expect interest outgo to remain high for the companies. Excluding Punj Lloyd numbers,
we expect net profits for Q4FY11 to grow by 6% YoY and 35% QoQ.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CONSTRUCTION
During FY11, construction sector witnessed sluggish order inflow activity
due to several issues. Order inflow is expected to increase from FY12
onwards due to higher allocations seen in infrastructure segment as well as
measures taken by government to enhance fund availability with the sector
such as setting up of infrastructure debt fund, hike in FII limit for
infrastructure debt bonds etc Along with this, NHAI has also resolved a large
number of issues such as land acquisition, DPRs, viability study of projects
etc which had impacted the award process in FY11. Thus, with continued
thrust of government, we expect sector to be one of the key beneficiaries
going forward.
We expect excellent revenue growth for companies during Q4FY11 and full
year FY11. Operating margins for the companies are likely to be maintained
due to variable pricing clauses. However, net profit growth is expected to
be impacted by higher interest outgo due to liquidity crunch and hike in
interest rates.
We continue to remain positive on the sector based on revenue visibility,
strong order book as well as stable operating margin scenario. Stocks are
currently trading at very attractive valuations and are already factoring in
concerns related to lack of order inflow and higher interest rates. Our top
picks in the sector would be IRB Infra, IVRCL infra, BGR Energy, Pratibha
Industries and Unity Infra etc Key risks to our recommendations would
come from lower than expected revenue execution and further delay in
order inflows.
Key highlights during Q4FY11
Order inflow remained sluggish for FY11
Order inflow during FY11 remained sluggish for most of the companies in construction
sector due to issues related to land acquisition, environmental clearance delays
or cancellations, corporate governance, lack of funds for the state government entities
etc. We had expected order inflow revival to happen by Q4FY11 but it was witnessed
only for select companies. However, FY12 looks promising in terms of order
inflow for the sector with increased activity to enhance project awards being witnessed
from NHAI. Government has also enhanced allocation for infrastructure sector
specifically irrigation, water supply and housing during union budget 2011-12.
Measures such as setting up of infrastructure debt fund, hike in FII limit for infrastructure
sector bonds and allowing NHAI, HUDCO to issue of tax free bonds is expected
to ease fund availability with the sector and hence can aid the order inflow for FY12.
Revenue growth likely to be healthy
With strong order books of construction companies, revenue growth for Q4FY11 and
full year FY11 is expected to be strong. Current order books provide visibility for next
2 years. Though order inflow in FY11 was lower than expectation, it may have some
negative impact on FY12 revenues if order inflow doesn't ramp up in next six
months. We expect revenue for Q4FY11 for our coverage universe to grow by 11%
YoY and 35% QoQ (excluding Punj Lloyd).
Operating margins to be maintained
Operating margins are expected to be stable for FY11 in comparison with FY10 due
to diversified business model and variable pricing clauses. Companies having higher
proportion of fixed price contracts may witness some margin contraction due to hike
in commodity prices. However, we expect margins to correct by nearly 25-50 bps for
FY12 to factor in increased competition as well as hike in the commodity prices seen
in past few months.
Higher interest outgo may impact net profit margins
Net profit growth of the companies is expected to be led by healthy revenue growth
as well as stable to improved operating margins. However higher interest outgo may
impact the net profit growth. Interest costs have witnessed an increase in past few
quarters and with high working capital requirements of the construction sector, we
expect interest outgo to remain high for the companies. Excluding Punj Lloyd numbers,
we expect net profits for Q4FY11 to grow by 6% YoY and 35% QoQ.
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