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Construction & Infrastructure
ƒ Order book to bill lowest in last five quarters despite slow execution
We expect a marginal improvement in order inflow of | 5061 crore in
Q2FY12 vs. | 4115 crore in Q1FY12. However, the order book to bill (on
TTM basis) for our construction coverage universe stands at 3.2x in
Q2FY12E vs. 3.7x in Q2FY11 despite slower execution. This is mainly
due to slower order inflows for the last couple of quarters and
cancellations of a few orders by the companies in their order book on
account of lack of clarity on their execution.
ƒ Muted topline growth expected in seasonally weak quarter
While, our construction universe is expected to see muted topline
growth of 6.3% YoY in Q2FY12 on account of slower execution, our
infrastructure universe topline growth is expected at 15.8% YoY aided
mainly by strong topline growth of IRB Infra (~52% YoY) on account of
strong execution of the construction order book and GMR (~52% YoY)
on account of consolidation of Male Airport.
ƒ Bottomline aggravated by higher interest cost
Interest expenses in our construction universe are expected to rise
~62% YoY (as percentage of revenues increased 230 bps YoY to 6.6%)
in Q2FY12 eroding the bottomline sharply (~62% YoY decline). In our
infrastructure coverage universe, a sharp rise in interest and
depreciation expenses will lead to a decline in NPM to 1.6% in Q2FY12
vs. 3.6% in Q2FY11 largely dragged by GMR (commissioning of the T-3
terminal).
ƒ Quarter full of deals – acquisitions and equity dilution at SPV level
Q2FY12 was significant in terms of deals in our coverage universe.
While GVK reported the acquisition of a 14% stake in BIAL and
acquisition of Hancock mines in Q2FY12, GMR Infra diluted a 30% stake
in GMR Energy (Singapore) Pte Ltd. HCC also diluted a 14.5% stake in
HCC Concessions. We believe dilution of equity at the SPV level will be
the next visible step taken by the companies considering the funding
needs of the companies particularly for companies such as IVRCL and
NCC.
Company specific view
Company Remarks
Simplex Infra Order inflow for Q2FY12E was ~| 1950 crore with ~60% of the new orders from the
power segment. We expect SIL to post ~9% YoY topline growth. However, the
bottomline is expected to decline ~46% YoY due to rise in interest expenses by
~78% YoY. Key monitorable: Execution rate, interest cost and debt level
Unity Infra We expect revenue growth of ~9% YoY. The bottomline, however, will witness degrowth of 23% YoY on the back of high interest cost. Unity has reported order inflow
of ~ | 250 crore during Q2FY12
NCC NCC announced orders worth | 629 crore in Q2FY12. We expect topline growth of
~6% YoY. The bottomline, however, is expected to witness a decline of ~36% YoY on
the back of high interest cost in Q2FY12 (expected to rise ~80% YoY). Key
monitorable: Update on power project & private equity deal in NCC Urban Infra,
working capital position and order inflow
IVRCL We expect IVRCL to post topline growth of ~2% YoY on account of slower execution
given the funding constraints faced by sub-contractors in the high interest rate
regime. The margin will also remain at 7.5% on account of a rise in raw material
prices. The partial pass through of this will be seen only from Q3FY12 onwards, as
guided by management in the last quarter. Key monitorable: Commentary on
execution and status of captive projects
HCC We expect HCC to report a loss given the high interest expenses due to high debt
level & working capital level. During the quarter, HCC diluted 14.5% stake in HCC
Concessions, which is an SPV for transport infrastructure projects valuing it at ~|
1650 crore. Key monitorable: Clarity on Lavasa environmental issues, working capital
& interest cost
Patel Engineering During the quarter, we expect the sluggishness in execution to continue for PEL in
Q2FY12. The concern over muted order inflow also remains with no growth in order
book for the last couple of quarter. Key monitorable: Order inflow, execution rate &
interest cost
JP Associates The topline is expected to remain flat for JAL on account of de-growth in the
construction and cement division. In the cement division, volume is expected to grow
19% YoY to 4.1 MT. However, the price correction (~10% correction) of cement is
expected to hurt the topline & bottomline during the quarter
GMR
Infrastructure
GMR is expected to report loss of | 91 crore on account of higher depreciation and
interest charges from DIAL. Post high court ruling in June, which quashed collection
of ADF at DIAL, GMR has approached AERA for approval to collect ADF putting the
further short-term debt pain on DIAL funding. The decision regarding the same is still
awaited. We also highlight that we are not incorporating any gains on 30% stake sale
in the Singapore subsidiary. Should that be incorporated, GMR's losses would get
reduced by ~| 45 crore
GVK Power We expect GVK's topline to decline ~6.2% on account of lower PLF after interim
arrangement for RLNG got over in June. During the quarter, GVK increased its stake in
BIAL to 43.5% by buying 14.5% stake from Siemens. GVK along with promoter group
company, GVK Coal Developers, also acquired Hancock mines for a consideration of
$1.26 billion. The funding for GVK's project and Hancock deal by the promoter group
remains the key challenges, going ahead
IRB
Infrastructure
We expect strong topline growth of ~52% in Q2FY12 due to strong execution in the
construction division. The bottomline, however, will see muted growth of ~5% due to
change in revenue mix, higher interest expenses and forex losses of | 10 crore on
account of earlier hedges. We also highlight that IRB could provide for | 15 crore for
IT raids in Q2FY12. We have not incorporated the same in our estimates
Source: Company, ICICIdirect.com Research
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