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Infra: Key drivers in 2011
CY11 to see a gradual recovery in Infra spend as financial closures in roads and power lead to
execution pickup
Power and roads will be the key drivers for the 35%+ CAGR in PPP spend over next couple of years. This will not
only offset the slowdown in growth in Govt. spending, but also ensure growth rate comes close to peak levels of
FY09-10 on a blended basis. Expect PPP spend in Power + Roads of ~USD 27bn over FY11E-13E
Lagged effect of high FY10 fiscal deficit (6.6%) will curb growth in govt. infra spend in the near term.
Industrial capex will take a while to recover due to weak global demand, delays in land acquisition, uncertainty
in fuel source tie-ups (e.g. iron-ore for steel players). Sharp rise in industrial capex, v/s current plans of cos could
be a swing factor for the sector
Oil & Gas contribution is taking a hit as in the backdrop of surplus refining capacity, additional capex will be subject
to directives given by the govt. to PSU refining companies
Metal players awaiting iron ore & land tie-ups and environmental clearance
Key assumptions: (a) NHAI awards of USD 6 bn each in FY11E & FY12E and USD 10 bn in FY13E; (b)
T&D orders of over USD 5 bn through Power Grid and PPP over the next couple of years
Recent slow pick-up in Power and Roads spending is due to:
Power : Delays due to land acquisition, environmental clearances and fuel tie-ups, delays in ordering by PGCIL
Roads: Delays in financial closure and land acquisition impacted execution. Retirement yr of NHAI’s chairman
in FY11, slowing awards
The massive jump in Infra spend to occur from FY14E: A repeat of the previous strong growth period of FY 06- 09, when all 3 cylinders
(PPP, Govt, Industrial) were firing. We anticipate next cycle of strong sector growth to be driven by Power, Roads, Dedicated Freight
Corridor and Capex
Power: Execution pick up in both generation and transmission backed by pvt sector investment
Roads: Execution of projects, given achievement of financial closures and land acquisition
Expect rise in capex to be driven by a] USD 10 bn inv. in city gas distribution b] Steady metals capex, assuming issues on land acquisition and mineral tieups
ease
Post the West Bengal election, the USD 10 bn Dedicated Freight Corridor project is expected to take-off
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