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UBS Investment Research
India Infrastructure
Positive momentum in power and roads
„ Event: Recent developments positive for power and roads in infra space
In our note L&T: Order pick-up to drive stock performance dated 28 March 2011,
we noted signs of a pick-up in the power/road sectors. Given recent events, we
think positive momentum is more visible in these two sub-sectors, which are the
largest constituents of the infra space. In power, 1) newsflow is positive on
domestic coal availability (mining in no-go areas and cancelation of nonperforming coal blocks); 2) SEB losses are still manageable and tariff hikes have
been enacted/proposed in 15 states. In roads, 1) project award activity is likely to
pick up and, 2) land acquisition and increased transparency are the focus areas.
„ Impact: At the margin, things are improving
We believe these events indicate some form of policy action has begun on the core
issues related to project awards and execution. The Ministry of Environment and
Forest (MoEF) is being more flexible with its approval for projects, which we think
is a key positive. We will wait for further data points, but it seems that at the
margin, things are getting better.
„ Action: We prefer companies leveraged to these two sectors
Although we believe there is value in infra/power stocks following the correction,
we think there are stronger near-term catalysts in the power and road sectors.
„ Top picks: Among large caps, we prefer L&T and Power Grid
L&T is our top pick; we believe it is the key beneficiary of positive developments
in the infrastructure space. Our top pick in the power space is Power Grid. In the
power space, we also like Bharat Heavy Electricals (BHEL) and Lanco Infratech.
In the roads space, the key likely beneficiaries are IRB Infrastructure Developers
(IRB) and Reliance Infrastructure (Reliance Infra), in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Infrastructure
Positive momentum in power and roads
„ Event: Recent developments positive for power and roads in infra space
In our note L&T: Order pick-up to drive stock performance dated 28 March 2011,
we noted signs of a pick-up in the power/road sectors. Given recent events, we
think positive momentum is more visible in these two sub-sectors, which are the
largest constituents of the infra space. In power, 1) newsflow is positive on
domestic coal availability (mining in no-go areas and cancelation of nonperforming coal blocks); 2) SEB losses are still manageable and tariff hikes have
been enacted/proposed in 15 states. In roads, 1) project award activity is likely to
pick up and, 2) land acquisition and increased transparency are the focus areas.
„ Impact: At the margin, things are improving
We believe these events indicate some form of policy action has begun on the core
issues related to project awards and execution. The Ministry of Environment and
Forest (MoEF) is being more flexible with its approval for projects, which we think
is a key positive. We will wait for further data points, but it seems that at the
margin, things are getting better.
„ Action: We prefer companies leveraged to these two sectors
Although we believe there is value in infra/power stocks following the correction,
we think there are stronger near-term catalysts in the power and road sectors.
„ Top picks: Among large caps, we prefer L&T and Power Grid
L&T is our top pick; we believe it is the key beneficiary of positive developments
in the infrastructure space. Our top pick in the power space is Power Grid. In the
power space, we also like Bharat Heavy Electricals (BHEL) and Lanco Infratech.
In the roads space, the key likely beneficiaries are IRB Infrastructure Developers
(IRB) and Reliance Infrastructure (Reliance Infra), in our view.
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