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The construction space (Asset owners and EPC players), for Dec-11 quarter, has
delivered improved performance as compared to the first two quarters of the current
fiscal. This was primarily led by better performance of asset owners as compared
to EPC players. However, the profitability on operating and net level continues to be
under stress. We believe, it will take few more quarters for the sector to deliver
accelerated performance, subject to improvement in the macro economic
environment and clarity emerging on policy issues.
We have analyzed the results of 25 companies in the construction space (EPC and
Asset owners). The key highlights of the Dec-11 quarter were— the highest order
inflow of ` 391 bn —in any quarter of FY12, rising proportion of slow moving/stalled
orders in the order book, deteriorating working capital coupled with margins erosion—
on account of rise in commodity prices (primarily Cement)— and 42% YoY growth
in the interest expenditure due to higher interest rate and stretched working capital..
The EBIDTA and PAT margins witnessed an erosion of 123 bps and 101 bps YoY
respectively and stood at 14.8% (Asset Owners: 22.8%, EPC: 9.1%) and 3.8%
(Asset Owners: 8.4%, EPC: 0.6%) respectively. The revenue registered a growth of
23% YoY (Asset Owners: 42%, EPC: 12%). The EBIDTA grew by 13% YoY (Asset
Owners: 36%, EPC: -13%) and PAT declined by 3% YoY (Asset Owners: 41%,
EPC: -75%) respectively. Deterioration in working capital has been largely
responsible for rise in interest expenditure as companies have resorted to high cost
borrowing to overcome liquidity paucity.
However, we believe, comparison of performance for longer tenure of 9 months will
give better picture. For 9MFY12, the aggregate sales have grown YoY by 19%
(Asset Owners: 33%, EPC: 10%). The EBIDTA registered YoY growth of 19% (Asset
Owners: 34%, EPC: -2%) however PAT decline YoY by 5% (Asset Owners: 19%,
EPC: -40%). The order inflow for 9MFY12 declined 4% YoY to ` 987 bn as against
` 1029 bn of same period last fiscal. The order book grew by 17% YoY for 9MFY12
to c.` 3 trilion and order book to sales ratio was c.3xFY11 revenue. It signifies
decent revenue visibility. However, rising proportion of slow moving orders, in the
order book, poised question mark on the duration required for conversion into
revenue.
The headwinds for the sector since past few quarters – benign capex cycle, policy
logjam, higher interest rates, decline in order inflow and delay in execution, still
exist. However, we believe that interest rates have peaked out; But, the impact of
softened interest rates will be at least few quarters away, for the sector. Some
positive news flow on related to power sector like solution to coal linkage issue,
steps taken towards resolving State Electricity Boards issues may not be enough
and we believe that green shoots are still at a distance
We continue to remain neutral-negative on the sector, in the light of proportionately
high bad news or no strong good news in vicinity. On the current situation, we
appreciate the enthusiasm shown by GOI to help the fuel starved power generators.
Apart from the above issues mentioned, we believe, the other pockets of infrastructure
needs more boost.
In this uncertain environment, we prefer the companies which offer impeccable
execution record, revenue visibility based on executable order book, well capitalized
balance sheet to exploit profitable growth opportunities, relatively lower cost of
capital and upside from current price.Thereby, we prefer IRB Infra and Sadbhav
Engineering.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The construction space (Asset owners and EPC players), for Dec-11 quarter, has
delivered improved performance as compared to the first two quarters of the current
fiscal. This was primarily led by better performance of asset owners as compared
to EPC players. However, the profitability on operating and net level continues to be
under stress. We believe, it will take few more quarters for the sector to deliver
accelerated performance, subject to improvement in the macro economic
environment and clarity emerging on policy issues.
We have analyzed the results of 25 companies in the construction space (EPC and
Asset owners). The key highlights of the Dec-11 quarter were— the highest order
inflow of ` 391 bn —in any quarter of FY12, rising proportion of slow moving/stalled
orders in the order book, deteriorating working capital coupled with margins erosion—
on account of rise in commodity prices (primarily Cement)— and 42% YoY growth
in the interest expenditure due to higher interest rate and stretched working capital..
The EBIDTA and PAT margins witnessed an erosion of 123 bps and 101 bps YoY
respectively and stood at 14.8% (Asset Owners: 22.8%, EPC: 9.1%) and 3.8%
(Asset Owners: 8.4%, EPC: 0.6%) respectively. The revenue registered a growth of
23% YoY (Asset Owners: 42%, EPC: 12%). The EBIDTA grew by 13% YoY (Asset
Owners: 36%, EPC: -13%) and PAT declined by 3% YoY (Asset Owners: 41%,
EPC: -75%) respectively. Deterioration in working capital has been largely
responsible for rise in interest expenditure as companies have resorted to high cost
borrowing to overcome liquidity paucity.
However, we believe, comparison of performance for longer tenure of 9 months will
give better picture. For 9MFY12, the aggregate sales have grown YoY by 19%
(Asset Owners: 33%, EPC: 10%). The EBIDTA registered YoY growth of 19% (Asset
Owners: 34%, EPC: -2%) however PAT decline YoY by 5% (Asset Owners: 19%,
EPC: -40%). The order inflow for 9MFY12 declined 4% YoY to ` 987 bn as against
` 1029 bn of same period last fiscal. The order book grew by 17% YoY for 9MFY12
to c.` 3 trilion and order book to sales ratio was c.3xFY11 revenue. It signifies
decent revenue visibility. However, rising proportion of slow moving orders, in the
order book, poised question mark on the duration required for conversion into
revenue.
The headwinds for the sector since past few quarters – benign capex cycle, policy
logjam, higher interest rates, decline in order inflow and delay in execution, still
exist. However, we believe that interest rates have peaked out; But, the impact of
softened interest rates will be at least few quarters away, for the sector. Some
positive news flow on related to power sector like solution to coal linkage issue,
steps taken towards resolving State Electricity Boards issues may not be enough
and we believe that green shoots are still at a distance
We continue to remain neutral-negative on the sector, in the light of proportionately
high bad news or no strong good news in vicinity. On the current situation, we
appreciate the enthusiasm shown by GOI to help the fuel starved power generators.
Apart from the above issues mentioned, we believe, the other pockets of infrastructure
needs more boost.
In this uncertain environment, we prefer the companies which offer impeccable
execution record, revenue visibility based on executable order book, well capitalized
balance sheet to exploit profitable growth opportunities, relatively lower cost of
capital and upside from current price.Thereby, we prefer IRB Infra and Sadbhav
Engineering.
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