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Asset developers perform better than EPC players
2QFY11 earnings (net profit) of the infrastructure sector (seven EPC players and
six infrastructure developers) showed a declining trend because of higher
interest costs and slower project execution by EPC players. Interest costs as a
percentage of sales rose by ~200bps to 500bps following higher interest rates
coupled with increase in working capital requirement. Bloomberg consensus
estimate earnings of the infrastructure sector for FY12 and FY13 were
downgraded by 3%. In our sector report dated 26 September 2011, we had
stated the performance of infrastructure companies would be subdued in the
coming quarters. However, concerns over rising interest rates, regulatory
issues and projects execution delay are likely to subside in the short term,
thereby leading to outperformance by infrastructure stocks. We retain our
positive view on the sector.
Key highlights:
Infrastructure developers companies reported robust net sales as compared to
pure EPC players. Net sales growth of EPC players was up 8% YoY, but down
3% compared to Bloomberg consensus estimate due to rising working capital.
Infrastructure developers’ net sales growth was up 30% YoY and 12% higher than
Bloomberg consensus estimate, primarily driven by execution of captive projects.
EBITDA of pure EPC players increased 6% YoY, but was down 7% compared to
Bloomberg consensus estimate, primarily in line with lower revenue growth.
EBITDA of infrastructure developers rose 20% YoY, which was 5% higher than
Bloomberg consensus estimate.
Interest costs, as a percentage of sales, increased by ~200bps to 500bps for
infrastructure companies during the quarter, which has impacted EPC players’ net
profit.
Net profit of EPC players declined 68%, which was 44% lower than Bloomberg
consensus estimate, primarily due to subdued revenue growth and higher interest
costs. Net profit of infrastructure developers declined 23%, which was 15% lower
than Bloomberg consensus estimate, because of declining margins following the
rising contribution of lower margin segment business to revenue and also higher
interest costs.
Net working capital requirement of EPC players increased 17% (as against sales
growth of 7%), but for infrastructure developers it declined 6%, primarily due to
increase in current liabilities.
Bloomberg consensus FY13 net profit estimate post 2QFY12 results was
downgraded primarily because of HCC (down 17%), NCC (down 14%) and GMR
Infrastructure (down 4%).
Our view: Going ahead, infrastructure companies will continue to show a declining
trend in terms of profitability in the coming quarters, which is largely discounted by the
market. However, concerns over rising interest rates, regulatory issues and project
execution delay are likely to subside in the short term. The valuation of the sector is
close to its bottom and therefore we retain our positive view on the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset developers perform better than EPC players
2QFY11 earnings (net profit) of the infrastructure sector (seven EPC players and
six infrastructure developers) showed a declining trend because of higher
interest costs and slower project execution by EPC players. Interest costs as a
percentage of sales rose by ~200bps to 500bps following higher interest rates
coupled with increase in working capital requirement. Bloomberg consensus
estimate earnings of the infrastructure sector for FY12 and FY13 were
downgraded by 3%. In our sector report dated 26 September 2011, we had
stated the performance of infrastructure companies would be subdued in the
coming quarters. However, concerns over rising interest rates, regulatory
issues and projects execution delay are likely to subside in the short term,
thereby leading to outperformance by infrastructure stocks. We retain our
positive view on the sector.
Key highlights:
Infrastructure developers companies reported robust net sales as compared to
pure EPC players. Net sales growth of EPC players was up 8% YoY, but down
3% compared to Bloomberg consensus estimate due to rising working capital.
Infrastructure developers’ net sales growth was up 30% YoY and 12% higher than
Bloomberg consensus estimate, primarily driven by execution of captive projects.
EBITDA of pure EPC players increased 6% YoY, but was down 7% compared to
Bloomberg consensus estimate, primarily in line with lower revenue growth.
EBITDA of infrastructure developers rose 20% YoY, which was 5% higher than
Bloomberg consensus estimate.
Interest costs, as a percentage of sales, increased by ~200bps to 500bps for
infrastructure companies during the quarter, which has impacted EPC players’ net
profit.
Net profit of EPC players declined 68%, which was 44% lower than Bloomberg
consensus estimate, primarily due to subdued revenue growth and higher interest
costs. Net profit of infrastructure developers declined 23%, which was 15% lower
than Bloomberg consensus estimate, because of declining margins following the
rising contribution of lower margin segment business to revenue and also higher
interest costs.
Net working capital requirement of EPC players increased 17% (as against sales
growth of 7%), but for infrastructure developers it declined 6%, primarily due to
increase in current liabilities.
Bloomberg consensus FY13 net profit estimate post 2QFY12 results was
downgraded primarily because of HCC (down 17%), NCC (down 14%) and GMR
Infrastructure (down 4%).
Our view: Going ahead, infrastructure companies will continue to show a declining
trend in terms of profitability in the coming quarters, which is largely discounted by the
market. However, concerns over rising interest rates, regulatory issues and project
execution delay are likely to subside in the short term. The valuation of the sector is
close to its bottom and therefore we retain our positive view on the sector.
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