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Construction & Infrastructure
Execution woes, stretched balance sheet to limit topline growth
We expect our construction universe revenues to grow 9.3% YoY in
Q1FY12E despite a low base in Q1FY11 on account of execution
woes and stretched balance sheet due to expanded working capital.
Among these, IVRCL is expected to post ~14% YoY topline growth
followed by NCC and Simplex with ~12% and ~9% growth in
revenues, respectively. In our infrastructure coverage, topline is
expected to remain flattish. IRB’s topline is expected to grow ~24%
on account of strong growth in construction revenues (24% YoY to
| 410 crore) while JAL topline is expected to decline ~4% YoY
largely due to de-growth in the construction division.
Rising interest cost to lead to bottomline de-growth
Given the rise in interest rate and higher debt level led by
deteriorating working capital condition, interest expenses in our
construction universe have expanded to 1.5x YoY (as percentage of
revenues increased 160 bps YoY to 5.5%) in Q1FY12. Consequently,
the bottomline is expected to decline ~39% YoY. In our
infrastructure coverage universe, a sharp rise in interest and
depreciation expenses will lead to decline in NPM to 3.2% in
Q1FY12 vs. 5.2% in Q1FY11 largely dragged by GMR.
Government decision making remains slow…
The deceleration in the government’s decision making has not only
impacted our construction universe order inflow but also led to a
deadlock for regulatory reforms in the infrastructure space. In
Q1FY12, our coverage construction companies witnessed a muted
order inflow of ~| 4600 crore (Simplex Infra: | 1000 crore, IVRCL: |
900 crore, HCC: | 1000 crore Unity: | 700 crore, NCC: | 1000 crore)
vs. ~| 6500 crore in Q4FY11. In the infrastructure space, a deadlock
continues to remain for regulatory reforms such as clarity on AERA
guidelines, pending approval for monetisation of the MIAL land bank
and pending court decision over merchant power sale. In the road
space, while there has been some pick-up in terms of road awarding
activity and improving transparency through an e-bidding process.
Company specific view
Company Remarks
Simplex Infra Order inflow for Q1FY12E is ~| 800-1000 crore. We expect SIL to post
~9% YoY topline growth. However, the bottomline is expected to decline
~16% YoY due to a rise in interest expenses by ~33% YoY. Key
monitorable: Execution rate, interest cost and revenues from the
international segment
Unity Infra Unity is expected to report muted revenue growth of ~6% YoY. The
bottomline, however, will witness de-growth of 27% YoY on the back of
high interest cost. Unity has reported order inflow to the tune of ~| 700
crore during the first two months of Q1FY12
NCC NCC has received orders worth ~ | 1000 crore in Q1FY12. We expect
topline growth of ~9% YoY. Bottomline, however, is expected to decline
~32% YoY on the back of high interest cost in Q1FY12 (expected to rise
by 100% YoY). Key monitorable: update on power project, working capital
position and order inflow
IVRCL We expect IVRCL to post revenue growth of ~14% YoY in Q1FY12.
However, high interest cost (rise of ~32% YoY) will lead to revenue
decline of ~7% YoY in Q1FY12. Key monitorable: management
commentary on execution rate and status of three road projects where
financial closure is still awaited
HCC HCC redeemed FCCBs worth US$133 million in February 2011, which has
been funded from internal accruals & debt leading to higher interest cost
and interest outgo. Consequently, we expect HCC to post bottomline
decline of ~80% YoY in Q1FY12 with~64% YoY increase in interest
expenses. Key monitorable: clarity on Lavasa environmental issues,
working capital and interest cost
Patel Engineering We expect sluggishness in execution to continue for PEL in Q1FY12. The
concern over muted order inflow also remains with no growth in order
book in the last couple of quarters. Key monitorable: order inflow,
execution rate, interest cost & clarity on tax raid
JP Associates This quarter is expected to remain subdued for JAL due to de-growth in
the construction division and decline in cement division EBIT margin. In
the cement division, while realisation is expected to remain more or less
same as last quarter we should see the full impact of cost escalation in
coal prices
GMR Infrastructure GMR is expected to continue to report losses on account of higher
depreciation and interest charges from DIAL. The high court ruling in June
quashed collection of ADF at DIAL. Meanwhile, GMR has approached
AERA for approval to collect ADF
GVK Power Power division is expected to continue reporting lower PLF due to gas
supply constraints. We expect road division to report margin of 72.3% vs.
46.4% in Q1FY11 due to major maintenance expenses that were charged
in Q1FY11. Consequently, we expect overall margin to expand 150 bps
YoY to 27.2% in Q1FY12
IRB Infrastructure The toll revenue is expected to be boosted by the toll hike of ~17% in the
Mumbai-Pune Expressway from April, 2011. IRB bagged the Ahmedabad
Vadodara project worth | 4920 crore (including IDC charges & part of
premium payable to NHAI during construction phase)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Construction & Infrastructure
Execution woes, stretched balance sheet to limit topline growth
We expect our construction universe revenues to grow 9.3% YoY in
Q1FY12E despite a low base in Q1FY11 on account of execution
woes and stretched balance sheet due to expanded working capital.
Among these, IVRCL is expected to post ~14% YoY topline growth
followed by NCC and Simplex with ~12% and ~9% growth in
revenues, respectively. In our infrastructure coverage, topline is
expected to remain flattish. IRB’s topline is expected to grow ~24%
on account of strong growth in construction revenues (24% YoY to
| 410 crore) while JAL topline is expected to decline ~4% YoY
largely due to de-growth in the construction division.
Rising interest cost to lead to bottomline de-growth
Given the rise in interest rate and higher debt level led by
deteriorating working capital condition, interest expenses in our
construction universe have expanded to 1.5x YoY (as percentage of
revenues increased 160 bps YoY to 5.5%) in Q1FY12. Consequently,
the bottomline is expected to decline ~39% YoY. In our
infrastructure coverage universe, a sharp rise in interest and
depreciation expenses will lead to decline in NPM to 3.2% in
Q1FY12 vs. 5.2% in Q1FY11 largely dragged by GMR.
Government decision making remains slow…
The deceleration in the government’s decision making has not only
impacted our construction universe order inflow but also led to a
deadlock for regulatory reforms in the infrastructure space. In
Q1FY12, our coverage construction companies witnessed a muted
order inflow of ~| 4600 crore (Simplex Infra: | 1000 crore, IVRCL: |
900 crore, HCC: | 1000 crore Unity: | 700 crore, NCC: | 1000 crore)
vs. ~| 6500 crore in Q4FY11. In the infrastructure space, a deadlock
continues to remain for regulatory reforms such as clarity on AERA
guidelines, pending approval for monetisation of the MIAL land bank
and pending court decision over merchant power sale. In the road
space, while there has been some pick-up in terms of road awarding
activity and improving transparency through an e-bidding process.
Company specific view
Company Remarks
Simplex Infra Order inflow for Q1FY12E is ~| 800-1000 crore. We expect SIL to post
~9% YoY topline growth. However, the bottomline is expected to decline
~16% YoY due to a rise in interest expenses by ~33% YoY. Key
monitorable: Execution rate, interest cost and revenues from the
international segment
Unity Infra Unity is expected to report muted revenue growth of ~6% YoY. The
bottomline, however, will witness de-growth of 27% YoY on the back of
high interest cost. Unity has reported order inflow to the tune of ~| 700
crore during the first two months of Q1FY12
NCC NCC has received orders worth ~ | 1000 crore in Q1FY12. We expect
topline growth of ~9% YoY. Bottomline, however, is expected to decline
~32% YoY on the back of high interest cost in Q1FY12 (expected to rise
by 100% YoY). Key monitorable: update on power project, working capital
position and order inflow
IVRCL We expect IVRCL to post revenue growth of ~14% YoY in Q1FY12.
However, high interest cost (rise of ~32% YoY) will lead to revenue
decline of ~7% YoY in Q1FY12. Key monitorable: management
commentary on execution rate and status of three road projects where
financial closure is still awaited
HCC HCC redeemed FCCBs worth US$133 million in February 2011, which has
been funded from internal accruals & debt leading to higher interest cost
and interest outgo. Consequently, we expect HCC to post bottomline
decline of ~80% YoY in Q1FY12 with~64% YoY increase in interest
expenses. Key monitorable: clarity on Lavasa environmental issues,
working capital and interest cost
Patel Engineering We expect sluggishness in execution to continue for PEL in Q1FY12. The
concern over muted order inflow also remains with no growth in order
book in the last couple of quarters. Key monitorable: order inflow,
execution rate, interest cost & clarity on tax raid
JP Associates This quarter is expected to remain subdued for JAL due to de-growth in
the construction division and decline in cement division EBIT margin. In
the cement division, while realisation is expected to remain more or less
same as last quarter we should see the full impact of cost escalation in
coal prices
GMR Infrastructure GMR is expected to continue to report losses on account of higher
depreciation and interest charges from DIAL. The high court ruling in June
quashed collection of ADF at DIAL. Meanwhile, GMR has approached
AERA for approval to collect ADF
GVK Power Power division is expected to continue reporting lower PLF due to gas
supply constraints. We expect road division to report margin of 72.3% vs.
46.4% in Q1FY11 due to major maintenance expenses that were charged
in Q1FY11. Consequently, we expect overall margin to expand 150 bps
YoY to 27.2% in Q1FY12
IRB Infrastructure The toll revenue is expected to be boosted by the toll hike of ~17% in the
Mumbai-Pune Expressway from April, 2011. IRB bagged the Ahmedabad
Vadodara project worth | 4920 crore (including IDC charges & part of
premium payable to NHAI during construction phase)
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