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Base effect respite
Earnings to remain weak despite a seasonally strong quarter
Construction and infrastructure stocks are expected to persist with
their poor performance amidst a still challenging macro environment.
Despite being a strong quarter seasonally, earnings are expected to
nosedive YoY as a majority of companies remain trapped in the vicious
cycle of higher working capital needs higher borrowings higher
interest outgo low profitability, poor return ratios, stretched balance
sheets decline in overall industry attractiveness.
Amidst our coverage universe, revenues are set to register a moderate
growth of 16.9% QoQ and 13.8% YoY, led primarily by the base effect.
While on the operating front, we estimate 5.1%/9.7% QoQ/YoY rise in
EBIDTA for our universe (OPMs (168bps)/(56bps) QoQ/YoY); on the
earnings front, rising interest costs and quantum of borrowings are
expected to take a heavy toll on the anticipated performance. We
estimate a depressing 24.8% YoY de-growth in earnings for the
quarter; earnings growth however, is expected to be 8.1% QoQ.
Headwinds to persist till Sep’12, pick up in order flows decisive
The infrastructure sector continues to reel under severe strain given
inconsistent order flows from the public sector coupled with gradual
but continuously declining inflows from the private sector. This
coupled with the usual lacunas in basic policy framework relating to
the PPP format has dented the developer/investor confidence severely.
We re-iterate our sectoral stance that even if the broader operating
environment commences easing up, core construction companies may
take at least a year to repair their balance sheets and come out of the
existing slump. Our Distress Case scenario indicates further possible
downsides (assuming continuation of existing operating and financing
challenges till Mar’13) besides identifying potential investment
opportunities. We continue to back structurally strong road
infrastructure plays in Sadbhav, ITNL and IRB Infra and recommend
adding long positions on dips.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Base effect respite
Earnings to remain weak despite a seasonally strong quarter
Construction and infrastructure stocks are expected to persist with
their poor performance amidst a still challenging macro environment.
Despite being a strong quarter seasonally, earnings are expected to
nosedive YoY as a majority of companies remain trapped in the vicious
cycle of higher working capital needs higher borrowings higher
interest outgo low profitability, poor return ratios, stretched balance
sheets decline in overall industry attractiveness.
Amidst our coverage universe, revenues are set to register a moderate
growth of 16.9% QoQ and 13.8% YoY, led primarily by the base effect.
While on the operating front, we estimate 5.1%/9.7% QoQ/YoY rise in
EBIDTA for our universe (OPMs (168bps)/(56bps) QoQ/YoY); on the
earnings front, rising interest costs and quantum of borrowings are
expected to take a heavy toll on the anticipated performance. We
estimate a depressing 24.8% YoY de-growth in earnings for the
quarter; earnings growth however, is expected to be 8.1% QoQ.
Headwinds to persist till Sep’12, pick up in order flows decisive
The infrastructure sector continues to reel under severe strain given
inconsistent order flows from the public sector coupled with gradual
but continuously declining inflows from the private sector. This
coupled with the usual lacunas in basic policy framework relating to
the PPP format has dented the developer/investor confidence severely.
We re-iterate our sectoral stance that even if the broader operating
environment commences easing up, core construction companies may
take at least a year to repair their balance sheets and come out of the
existing slump. Our Distress Case scenario indicates further possible
downsides (assuming continuation of existing operating and financing
challenges till Mar’13) besides identifying potential investment
opportunities. We continue to back structurally strong road
infrastructure plays in Sadbhav, ITNL and IRB Infra and recommend
adding long positions on dips.
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