Government new capex picks up as private sector remains elusive
Government new project starts showing signs of revival…
The CMIE Dec ’13 update on capex investment shows average four quarterly
new project starts at Rs1064bn, increasing by 29% qoq. The investment for
the quarter itself is the highest recorded in 6 quarters. While new projects
announced by the private sector continued to decline (down to c.Rs200bn
for the quarter vs. average of Rs1.5tn since 2004), government capex
showed a sharp increase to Rs710bn in the quarter (+73% qoq, +89% yoy)
driven by announcements of new solar power capacity.
This is the third consecutive quarter where government capex is higher
than private (after 40 quarters), and the second consecutive qoq increase in
government capex. With the government reform measures and the Cabinet
Committee on Investments (CCI) working on fast-tracking clearances for
infrastructure projects, we believe further downside in new investments
would be limited and we could potentially be past the bottom.
...completion still lackluster + stalled/shelved projects increased
The average four quarterly project completions declined 25% yoy, and
various major projects saw implementation stall in the quarter (reaching
5.1% of total projects outstanding). We believe this will reflect in the
upcoming earnings season (3QFY14) in the form of muted order book and
revenue growth. The uptick in government new investment will likely take
a few quarters to start reflecting in execution, and we remain concerned
about limited private sector announcements of new projects. With 31% of
the projects accepted having been fully addressed by the CCI, real
implementation of those will be key to re-start the capex cycle in our view.
Prefer quality with better visibility on growth
Given our expectation of a gradual capex recovery, we prefer structural
winners having quality execution and growth visibility. Our preferred pick
in the Infrastructure space is L&T (CL-Buy, 12-month TP Rs1064). We like
L&T because of its high order book coverage, execution ability and strong
balance sheet. We believe L&T is best positioned to benefit from a
potential recovery in the domestic investment cycle. We retain a Sell on
BHEL (Sell, 12-month TP Rs110) given lack of growth and our expectation
of declining returns for the stock due to negative operating leverage. Key
risks: Downside: Continued slowdown and high interest rates; Upside: Pickup
in capex and faster interest rate cuts.
��
Government new project starts showing signs of revival…
The CMIE Dec ’13 update on capex investment shows average four quarterly
new project starts at Rs1064bn, increasing by 29% qoq. The investment for
the quarter itself is the highest recorded in 6 quarters. While new projects
announced by the private sector continued to decline (down to c.Rs200bn
for the quarter vs. average of Rs1.5tn since 2004), government capex
showed a sharp increase to Rs710bn in the quarter (+73% qoq, +89% yoy)
driven by announcements of new solar power capacity.
This is the third consecutive quarter where government capex is higher
than private (after 40 quarters), and the second consecutive qoq increase in
government capex. With the government reform measures and the Cabinet
Committee on Investments (CCI) working on fast-tracking clearances for
infrastructure projects, we believe further downside in new investments
would be limited and we could potentially be past the bottom.
...completion still lackluster + stalled/shelved projects increased
The average four quarterly project completions declined 25% yoy, and
various major projects saw implementation stall in the quarter (reaching
5.1% of total projects outstanding). We believe this will reflect in the
upcoming earnings season (3QFY14) in the form of muted order book and
revenue growth. The uptick in government new investment will likely take
a few quarters to start reflecting in execution, and we remain concerned
about limited private sector announcements of new projects. With 31% of
the projects accepted having been fully addressed by the CCI, real
implementation of those will be key to re-start the capex cycle in our view.
Prefer quality with better visibility on growth
Given our expectation of a gradual capex recovery, we prefer structural
winners having quality execution and growth visibility. Our preferred pick
in the Infrastructure space is L&T (CL-Buy, 12-month TP Rs1064). We like
L&T because of its high order book coverage, execution ability and strong
balance sheet. We believe L&T is best positioned to benefit from a
potential recovery in the domestic investment cycle. We retain a Sell on
BHEL (Sell, 12-month TP Rs110) given lack of growth and our expectation
of declining returns for the stock due to negative operating leverage. Key
risks: Downside: Continued slowdown and high interest rates; Upside: Pickup
in capex and faster interest rate cuts.
No comments:
Post a Comment