India Construction Long-term outlook intact :: Anand Rathi

India Construction
Long-term outlook intact
Key takeaways
Revenue growth due to robust orders. Companies we cover are likely to
register 11.7% yoy revenue growth (25.8% qoq). Some such as Supreme
Infrastructure, J Kumar Infraprojects and KNR had secured a vast chunk of
orders in FY13 and are expected to record strong revenue growth yoy.
Growth for Pratibha and Simplex could, however, be lower due to piled-up
unbilled revenue, and delays in payments/clearances in certain projects,
causing execution slippages.
EBITDA, profit-growth trend declines. We expect the EBITDA margin to
decline ~50bps yoy, and improve ~20bps qoq, on average. Yoy margins of
NCC, J Kumar and Simplex are likely to improve, while those of Supreme,
Pratibha and KNR could dip. Aggregate net profit could decline an average
20.3% yoy (up 57% qoq). With an increase in working capital days, we expect
debt of most of the companies would have risen, increasing interest costs.
Thus, despite strong revenue growth, net profit growth of some companies
could be restrained.
Our take. The sector is likely to gain some attention from policy makers,
given the upcoming elections. From a medium- to long-term perspective it is
still attractive. The government’s continuous efforts to improve the funding
situation in infrastructure and the clearance of many infrastructure projects
would provide a further fillip to the liquidity-starved construction sector. Key
monitorables: Execution, order-book growth, debt profile and the workingcapital cycle.
Top picks. NCC, J Kumar Infraprojects and Simplex Infrastructure.

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Profits to decline
Aggregate net profit could decline an average 20.3% yoy (up 57% qoq).
With an increase in working capital days, we expect debt of most of the
companies to rise, raising interest costs. Thus, despite strong revenue
growth, net profit growth of some companies could be subdued.
The sector is likely to gain some attention from policy makers, given the
upcoming elections. It remains attractive from a medium- to long-term
perspective. The government’s continuous efforts to improve the funding
situation in infrastructure and clearance of many infrastructure projects
would provide a further fillip to the liquidity-starved construction sector.
Key monitorables: Execution, order-book growth, debt profile and the
working-capital cycle.

Things to watch out for:
 Update on issues relating to approvals, clearances, financial closures of
projects
 Orders during 3QFY14 and guidance
 Working capital cycle.