India Infrastructure- Government Projects Uptick Fails to Negate Private Projects Fall  Citi Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


India Infrastructure Insights- 12
Government Projects Uptick Fails to Negate Private Projects Fall
 Following up on III - 8 and III - 9, in our 12th edition of India Infrastructure Insights (III),
we revisit new project announcements, project completion and stalled projects data
from CMIE’s capex data base which has now been updated to September 2011.
 New project announcements fell sharply in 2QFY12 — New project announcements
per quarter further declined to Rs2607bn (-29% YoY / -27% QoQ) in 2QFY12. This is
despite a sharp uptick in new project announcements from the Government which
increased to Rs2100bn (+66% YoY/ +48% YoY).
 Private sector new project announcements have come to a standstill — Private
new project announcements per quarter fell off a cliff in 2QFY12 to a mere Rs507bn (-
79% YoY / -77% QoQ). In 2QFY12, the pace of new project announcements per
quarter by the private sector has been slowest since June 2004.
 Sharp jump in stalled projects — Projects under implementation but stalled for
various reasons have jumped sharply in 2QFY12. Total value of such projects has
increased to Rs4174bn in September 2011 (+42% YoY/ + 15% QoQ). Private sector
projects have suffered more compared to government projects. Total value of stalled
private sector projects has increased to Rs3268bn (+47% YoY/ +18% QoQ) compared
to stalled government projects at Rs906bn (+24% YoY/+6% QoQ).
 Increased quantum of shelved projects — Projects worth Rs721bn were shelved in
2QFY12 compared to quarterly average of Rs230-250bn over FY07-1QFY12. Shelved
projects are those projects which have become unviable following a sudden change in
the socio-economic or political environment. A sharp uptick in shelved projects in
2QFY12 could be due to a one-off large project but needs to be monitored closely
 Project completion continues to slow down — In 2QFY12, projects worth Rs610bn
(flat YoY/ -6% QoQ) were completed. Average quarterly project completion rate has
declined from Rs970bn/quarter in FY10 and Rs792bn/quarter in FY11 to
Rs650bn/quarter in 1QFY12 and Rs610bn/ quarter in 2QFY12.
 Slowdown in new projects and execution is pervasive and well known — By now
it is well known that macroeconomic headwinds, fuel supply issues, policy hurdles,
delays relating to environmental clearances, and high interest rates have taken their toll
on the pace of capex in India. The impact of these factors is very visible both
anecdotally and from CMIE’s capex database. The key question is when the capex
cycle will turn. We continue to monitor trends to look for the first signs of an uptick.
However, latest data suggest we need to wait longer for the same.
 Government action is key — We believe rapid policy and procedural action on the
part of Government is the key to reviving India’s capex cycle.