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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Government inaction may not be the only one; cycle itself has a big role. We
highlight data points that partially belie the predominant explanation that government
inaction and lack of clearances have caused the slowdown. For example, (1) percentage
of proposals receiving environmental clearances have not materially changed, (2) the
same goes for forest clearances (hectares of area cleared), (3) land acquisition by NHAI
has picked up implied by increased award activity (FY2012 target of 3-4X of FY2009-10
levels). The positive business cycle may be moderating itself (11X growth over FY2003-
10) and the cycle itself has had a role in exposing long- standing bottlenecks (lack of
incremental reform) and imbalances (mining, labor)
Data points show government Inaction and lack of clearances are not the only cause of slowdown
Environmental clearances: The Ministry of Environment and Forests (MoEF) continues to
maintain its rate of approving proposals for environmental clearance at the rate of its decadal
average of about 50%.
Forest clearances: The ministry has broadly maintained the quantum of forest land cleared at
about 67,000 hectares a year over FY2010-11 (76,000 hectares a year over FY2006-09).
Land acquisition by NHAI: NHAI has significantly stepped up land acquisition activity as
implied by the sharp increase in its award activity. It awarded 2,476 km in 1HFY12 (targeting
7,300 km for the full year) and 5,058 km in FY2011 versus an average of 2,000 km of awards
over FY2009-10.
Slowdown partly cyclical; strong cycle may be exposing bottlenecks that have always been there
We believe the present slowdown in capex is more related to the cycle moderating after a period
of strong activity (financial closures grew 11-12X over FY2003-10). The strong positive cycle has
helped to expose long-standing impediments to growth such as (1) political indecision, delaying
key reforms and (2) slow development of key inputs (coal, labor). Among the inputs, we focus on
slow pace of coal production not keeping pace with coal-based capacity addition (present
production can support only two-thirds of coal-based installed capacity). The government is trying
to address the issue as is reflected in (1) coal ministry and MoEF now questioning the legal sanctity
of the go-no go policy (production potential - 660 MT or 130 GW of electricity) and (2) fast
tracking of appraisal of incremental coal projects as well as existing mines.
Activity picks up: transmission, mining and distribution may hold out some hope
Transmission: PGCIL stepped up activity in FY2012 and has awarded projects worth Rs87 bn in
8MFY12 versus Rs57 bn in 9MFY11.
Mining: The sector has seen strong growth in lending from banks in FY2012 (up 42% yoy). This
may enhance coal production, boosting fresh investment in power projects.
Distribution: Key utilities have been revising power tariffs in various states including (1)
Rajasthan (20-30%), (2) Delhi (22%) and (3) Jharkhand (19%). This would help to lower the
debt burden and increase potential to absorb incremental supply.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrials
India
Government inaction may not be the only one; cycle itself has a big role. We
highlight data points that partially belie the predominant explanation that government
inaction and lack of clearances have caused the slowdown. For example, (1) percentage
of proposals receiving environmental clearances have not materially changed, (2) the
same goes for forest clearances (hectares of area cleared), (3) land acquisition by NHAI
has picked up implied by increased award activity (FY2012 target of 3-4X of FY2009-10
levels). The positive business cycle may be moderating itself (11X growth over FY2003-
10) and the cycle itself has had a role in exposing long- standing bottlenecks (lack of
incremental reform) and imbalances (mining, labor)
Data points show government Inaction and lack of clearances are not the only cause of slowdown
Environmental clearances: The Ministry of Environment and Forests (MoEF) continues to
maintain its rate of approving proposals for environmental clearance at the rate of its decadal
average of about 50%.
Forest clearances: The ministry has broadly maintained the quantum of forest land cleared at
about 67,000 hectares a year over FY2010-11 (76,000 hectares a year over FY2006-09).
Land acquisition by NHAI: NHAI has significantly stepped up land acquisition activity as
implied by the sharp increase in its award activity. It awarded 2,476 km in 1HFY12 (targeting
7,300 km for the full year) and 5,058 km in FY2011 versus an average of 2,000 km of awards
over FY2009-10.
Slowdown partly cyclical; strong cycle may be exposing bottlenecks that have always been there
We believe the present slowdown in capex is more related to the cycle moderating after a period
of strong activity (financial closures grew 11-12X over FY2003-10). The strong positive cycle has
helped to expose long-standing impediments to growth such as (1) political indecision, delaying
key reforms and (2) slow development of key inputs (coal, labor). Among the inputs, we focus on
slow pace of coal production not keeping pace with coal-based capacity addition (present
production can support only two-thirds of coal-based installed capacity). The government is trying
to address the issue as is reflected in (1) coal ministry and MoEF now questioning the legal sanctity
of the go-no go policy (production potential - 660 MT or 130 GW of electricity) and (2) fast
tracking of appraisal of incremental coal projects as well as existing mines.
Activity picks up: transmission, mining and distribution may hold out some hope
Transmission: PGCIL stepped up activity in FY2012 and has awarded projects worth Rs87 bn in
8MFY12 versus Rs57 bn in 9MFY11.
Mining: The sector has seen strong growth in lending from banks in FY2012 (up 42% yoy). This
may enhance coal production, boosting fresh investment in power projects.
Distribution: Key utilities have been revising power tariffs in various states including (1)
Rajasthan (20-30%), (2) Delhi (22%) and (3) Jharkhand (19%). This would help to lower the
debt burden and increase potential to absorb incremental supply.
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