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E&C and developers (Bharat Parekh, Deepak)
Overweight
Key drivers of sector outlook
An extended cycle in which the Govt. has planned total infra spends of Rs41tn
(US$890bn) over FY13-17E – about 2x rise vs. the FY08-12E spend at 14% CAGR.
We expect the power sector to be the biggest driver, accounting for 33% of this
spend followed by roads, railways, airports & ports, irrigation & water, oil & gas.
Our top-down model forecasts that pent-up demand (deficit of 8.5% on base demand
and 10.3% on peak load in FY11) and an expanding economy should lead to +33%
per capita consumption by FY12E (145% from FY12-17E).
India likely to double the power generation capacity addition by another 95GW (vs.
planned 100GW), +94% over 12th Plan of the 98GW of capacity already ordered,
which will drive top-line.
National Highways Authority of India is confident of achieving/surpassing its targeted
44% YoY growth in kilometer award in FY12. This is on the top of 51%YoY growth in
FY11. In FY13, it is hopeful of awarding at least the same kilometer as in FY12.
Key risk is increasing reliance on PPP model in 12th Plan in light of funding/equity
constraint at private developers, which was expected to rise to about 40% from 32-
33%. This is given the much greater regulatory progress seen and improved
acceptance of PPP models across sectors. We prefer companies’ dependant on
Govt. capex, such as L&T & IVRC.
We expect the soft material prices to be the key driver of margins and to cushion
weak-demand led pricing pressure. The financing of our infrastructure spend
forecasts are not primarily dependant on budgetary support as Govt. companies
have well funded balance sheets.
In E&C we like L&T
Larsen & Toubro
Non-consensus Neutral rating on risks of a de-rating in its core business led by:
1) Likely to miss FY12 order inflows guidance on loss of big-ticket orders in
power, metal & infra space.
2) Low business confidence in India (below 2009) due to: a) policy paralysis at
the government level, b) rising interest rates and c) challenges with
acquisition of land/resources which will impact private industrial capex.
3) Weaker EPS growth – 14% over FY11-14 vs. 19% over FY08-11.
4) Potential decline in RoE due to shift in L&T’s business model – from an
asset-light E&C company to an asset-heavy infra developer.
5) Near term stranded capacities costing US$1bn at its defense shipyard and
nuclear forging plant, on lack of orders may drag consol. EPS and RoE.
Top stock pick: Infra developer – ITNL
IL&FS Transportation
Largest road developer in India. Well poised for 1.7x jump in road asset portfolio
from 1,500km in FY11 to 2,550km by FY14E. Potential new concession wins
given dominant industry position and successful track record of execution.
EPC order book of Rs89bn (1.4x FY13E sales) drives revenue (67-68% of
FY12/13E consol. revenue) on back of strong execution. Toll/annuity revenue to
grow 2.8x to 14% of sales by FY14E to Rs10.7bn (vs. 7% in FY12E).
Strong EPS growth of 20% over FY11-14E. RoE rising to 22% in FY13 (19%).
SOTP based PO of Rs 257, offers a potential upside of 47%. Top two
contributors to SOTP are BOT assets (61%) and EPC (34%). Cheap valuation:
Trades at P/BV of 1x FY13E, P/E of 5x FY13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
E&C and developers (Bharat Parekh, Deepak)
Overweight
Key drivers of sector outlook
An extended cycle in which the Govt. has planned total infra spends of Rs41tn
(US$890bn) over FY13-17E – about 2x rise vs. the FY08-12E spend at 14% CAGR.
We expect the power sector to be the biggest driver, accounting for 33% of this
spend followed by roads, railways, airports & ports, irrigation & water, oil & gas.
Our top-down model forecasts that pent-up demand (deficit of 8.5% on base demand
and 10.3% on peak load in FY11) and an expanding economy should lead to +33%
per capita consumption by FY12E (145% from FY12-17E).
India likely to double the power generation capacity addition by another 95GW (vs.
planned 100GW), +94% over 12th Plan of the 98GW of capacity already ordered,
which will drive top-line.
National Highways Authority of India is confident of achieving/surpassing its targeted
44% YoY growth in kilometer award in FY12. This is on the top of 51%YoY growth in
FY11. In FY13, it is hopeful of awarding at least the same kilometer as in FY12.
Key risk is increasing reliance on PPP model in 12th Plan in light of funding/equity
constraint at private developers, which was expected to rise to about 40% from 32-
33%. This is given the much greater regulatory progress seen and improved
acceptance of PPP models across sectors. We prefer companies’ dependant on
Govt. capex, such as L&T & IVRC.
We expect the soft material prices to be the key driver of margins and to cushion
weak-demand led pricing pressure. The financing of our infrastructure spend
forecasts are not primarily dependant on budgetary support as Govt. companies
have well funded balance sheets.
In E&C we like L&T
Larsen & Toubro
Non-consensus Neutral rating on risks of a de-rating in its core business led by:
1) Likely to miss FY12 order inflows guidance on loss of big-ticket orders in
power, metal & infra space.
2) Low business confidence in India (below 2009) due to: a) policy paralysis at
the government level, b) rising interest rates and c) challenges with
acquisition of land/resources which will impact private industrial capex.
3) Weaker EPS growth – 14% over FY11-14 vs. 19% over FY08-11.
4) Potential decline in RoE due to shift in L&T’s business model – from an
asset-light E&C company to an asset-heavy infra developer.
5) Near term stranded capacities costing US$1bn at its defense shipyard and
nuclear forging plant, on lack of orders may drag consol. EPS and RoE.
Top stock pick: Infra developer – ITNL
IL&FS Transportation
Largest road developer in India. Well poised for 1.7x jump in road asset portfolio
from 1,500km in FY11 to 2,550km by FY14E. Potential new concession wins
given dominant industry position and successful track record of execution.
EPC order book of Rs89bn (1.4x FY13E sales) drives revenue (67-68% of
FY12/13E consol. revenue) on back of strong execution. Toll/annuity revenue to
grow 2.8x to 14% of sales by FY14E to Rs10.7bn (vs. 7% in FY12E).
Strong EPS growth of 20% over FY11-14E. RoE rising to 22% in FY13 (19%).
SOTP based PO of Rs 257, offers a potential upside of 47%. Top two
contributors to SOTP are BOT assets (61%) and EPC (34%). Cheap valuation:
Trades at P/BV of 1x FY13E, P/E of 5x FY13E.
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