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● We expect construction sector companies under our coverage to
report weak 2QFY12 results. Aggregate sector profitability (ex-
JPA) is expected to decline 56% YoY due to sharp increase in
interest costs because of increased leverage and rising interest
rates. We expect EBITDA margin to be in the range of 8.1-10.1%.
● Order inflows are expected to be muted for most players with
overall expected order book growth of 6% YoY. Movement in
working capital cycle, which has deteriorated for most players
over the last few quarters, and order inflow guidance for rest of
FY12 would be key factors to watch.
● IVRCL is expected to report recurring PAT of just Rs16 mn due to
50% YoY increase in interest costs. Profitability for Simplex, NCC
and Gammon India is expected to be down 43/ 56/ 33% YoY.
● We expect 26% YoY growth in JPA’s cement revenues to be
offset by 24% YoY decline in construction revenues, leading to
muted overall sales growth of 2% YoY. EBITDA margin is
expected to remain flat at 22.9% and recurring PAT is expected to
decline 27% YoY to Rs828 mn.
High interest costs to impact sector profitability
We expect construction sector profitability (ex-JPA) to decline 56% YoY
in 2Q12 despite 11% YoY EBITDA growth due to sharp increase in
interest costs on account of increased leverage (high working capital)
and rising interest rates. We expect moderate revenue growth of 8%
YoY due to slow execution and muted order inflows during FY11 and
1HFY12. Working capital cycle, which has deteriorated for most players
over the last few quarters, would be a key factor to watch.
Among peers, Simplex is expected to have relatively better order book
growth (16% YoY) and sales growth (12% YoY). However, higher
interest cost is expected to result in 43% YoY decline in recurring PAT.
NCC
With order wins of only Rs14.4 bn reported for 2Q12, order book
growth is likely to be muted at 2% YoY. Sharp increase in interest cost
(96% YoY) is expected to result in 56% YoY decline in recurring PAT.
IVRCL
IVRCL has reported Rs22.3 bn of order wins for the quarter. EBITDA
margin is expected to be lowest among peers at 8.1% and 50% YoY
increase in interest expense is likely to result in recurring PAT of just
Rs16 mn (down 93% YoY).
Gammon India
Gammon’s order book has been flat at Rs150 bn for the past 4-5
quarters and is expected to remain there in 2QFY12. Recurring PAT is
expected to decline 33% YoY due to 31% YoY rise in interest costs.
JPA
We expect JPA’s cement revenues to grow 26% YoY, led by 17%
YoY growth in despatches and 8% YoY growth in realisation. However,
construction revenues are expected to decline 24% YoY, resulting in
muted overall sales growth of 2% YoY. Recurring PAT is expected to
decline 27% YoY due to a 35% YoY increase in interest costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We expect construction sector companies under our coverage to
report weak 2QFY12 results. Aggregate sector profitability (ex-
JPA) is expected to decline 56% YoY due to sharp increase in
interest costs because of increased leverage and rising interest
rates. We expect EBITDA margin to be in the range of 8.1-10.1%.
● Order inflows are expected to be muted for most players with
overall expected order book growth of 6% YoY. Movement in
working capital cycle, which has deteriorated for most players
over the last few quarters, and order inflow guidance for rest of
FY12 would be key factors to watch.
● IVRCL is expected to report recurring PAT of just Rs16 mn due to
50% YoY increase in interest costs. Profitability for Simplex, NCC
and Gammon India is expected to be down 43/ 56/ 33% YoY.
● We expect 26% YoY growth in JPA’s cement revenues to be
offset by 24% YoY decline in construction revenues, leading to
muted overall sales growth of 2% YoY. EBITDA margin is
expected to remain flat at 22.9% and recurring PAT is expected to
decline 27% YoY to Rs828 mn.
High interest costs to impact sector profitability
We expect construction sector profitability (ex-JPA) to decline 56% YoY
in 2Q12 despite 11% YoY EBITDA growth due to sharp increase in
interest costs on account of increased leverage (high working capital)
and rising interest rates. We expect moderate revenue growth of 8%
YoY due to slow execution and muted order inflows during FY11 and
1HFY12. Working capital cycle, which has deteriorated for most players
over the last few quarters, would be a key factor to watch.
Among peers, Simplex is expected to have relatively better order book
growth (16% YoY) and sales growth (12% YoY). However, higher
interest cost is expected to result in 43% YoY decline in recurring PAT.
NCC
With order wins of only Rs14.4 bn reported for 2Q12, order book
growth is likely to be muted at 2% YoY. Sharp increase in interest cost
(96% YoY) is expected to result in 56% YoY decline in recurring PAT.
IVRCL
IVRCL has reported Rs22.3 bn of order wins for the quarter. EBITDA
margin is expected to be lowest among peers at 8.1% and 50% YoY
increase in interest expense is likely to result in recurring PAT of just
Rs16 mn (down 93% YoY).
Gammon India
Gammon’s order book has been flat at Rs150 bn for the past 4-5
quarters and is expected to remain there in 2QFY12. Recurring PAT is
expected to decline 33% YoY due to 31% YoY rise in interest costs.
JPA
We expect JPA’s cement revenues to grow 26% YoY, led by 17%
YoY growth in despatches and 8% YoY growth in realisation. However,
construction revenues are expected to decline 24% YoY, resulting in
muted overall sales growth of 2% YoY. Recurring PAT is expected to
decline 27% YoY due to a 35% YoY increase in interest costs.
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