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http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf
Construction & Infrastructure
ƒ Road segment contributes to bulk of order inflows
Highways awarding saw major movement in Q4FY12 with NHAI
achieving total awarding of ~7957 km (including 1466 km awarded
through state agencies) vs. its targeted ~7300 km. Additionally, bids for
~ 425 km have been received and are currently under evaluation.
The companies under our coverage that have bagged road orders in
Q4FY12 are IVRCL (L1 in two BOT projects – 166 km Patiala Sangrur
section worth | 1586 crore and 121 km Gundugulanu Rajahmundry
section worth | 1617 crore), Unity (two BOT project - 69 km Punjab
Haryana Border Jind section of NH-71 worth | 510 crore and Suratgarh-
Sriganganagar Section worth | 330 crore) and Sadbhav (L1 in two BOT
projects – 83 km Gomati ka Chauraha - Udaipur section worth | 1280
crore and 111 km Solapur-Bijapur section worth | 1220 crore).
In terms of order inflows from other segments, Simplex witnessed order
flows worth | 4000-4500 crore (including L1 of 1600 crore), followed by
IVRCL, which received orders worth | 878 crore and Supreme, which
reported order inflows of | 619 crore (including L1 of | 274 crore).
ƒ Construction universe- Muted topline show expected in Q4FY12
We expect another muted topline show from our construction coverage
universe as we believe it will post a decline of 5.8% in revenues on a
YoY basis. In terms of superior results, Supreme, Simplex and Unity are
expected to post handsome growth in revenues of 34.9%, 19.3% and
15.4% YoY, respectively, led by robust execution. On the other hand,
Patel Engineering, IVRCL and HCC are expected to witness de-growth in
topline by 38.4%, 12% and 10.2% YoY, respectively, on account of
weak execution.
ƒ Infrastructure universe- revenue de-growth expected here also
In terms of the infrastructure coverage universe, we expect revenues to
decline 4.5% YoY. A major decline is expected in terms of revenues of
Sadbhav Engineering, which is expected to witness a decline of 30.8%
YoY post completion of its major BOT projects under construction.
Other companies under infrastructure are expected to post flattish to
modest growth in revenues in Q4FY12.
ƒ Bottomline pain on account of higher interests to continue
Higher interest expenses would continue to remain the major dampener
for the bottomline in Q4FY12. Interest expenses in our construction
universe are expected to rise by 18.1% YoY (as percentage of revenues,
increase of 109 bps YoY to 5.4%) in Q4FY12 eroding the bottomline
sharply. Consequently, we expect the bottomline of our construction
coverage universe to decline by 38% YoY in Q4FY12.
For our infrastructure coverage universe, a sharp rise in interest (up
~25% YoY) and depreciation expenses is expected to hurt the
bottomline significantly (decline of 34.4% YoY).
ƒ Depressed valuation evokes interest in the construction companies
We had indicated that dilution of equity at the SPV level could be the
next visible step taken by companies considering the funding needs of
companies particularly for companies like IVRCL and NCC. On the
contrary, depressed valuations coupled with low promoter shareholding
has evoked interest in IVRCL. According to media report, Essel Infra has
now acquired ~10.2% stake in the company and apparently closed in
with the promoter group holding of ~11.2%. Also, we saw other infrabased players such as NCC that have seen value erosion in the last year
and where promoter’s stake is very low seeing some activity in terms of
share prices.
: Company specific view (Construction coverage universe)
Company Remarks
HCC HCC failed to bag any orders during Q4FY12. With a stretched balance sheet
caused by a sharp rise in WC, we expect HCC’s revenues to decline ~12%
YoY. Additionally, with the lower margin coupled with a sharp rise in interest
expenses, we expect HCC to again post a loss of | 22.2 crore in Q4FY12
IVRCL We expect IVRCL to report a decline of ~10% YoY in topline as financial
closure for captive orders is yet to be done and execution has been sluggish
across projects. In terms of order inflow, IVRCL also bagged orders worth |
878 crore. Furthermore, IVRCL Assets emerged as L1 bidders for two projects
– 166 km Patiala Sangrur section worth | 1586 crore and 121 km
Gundugulanu Rajahmundry section worth | 1617 crore
NCC NCC is again expected to report muted growth of 0.5% YoY in topline led by
sluggish execution. The bottomline pain would, however, be accentuated by
lower margins (8.6% vs. 9% in Q4FY11) and higher interest cost, which is
expected to rise by 20% YoY to | 69.2 crore. Consequently, we expect NCC to
report a 33% YoY decline in PAT
Source: Company, ICICIdirect.com Research,
: Company specific view (Construction coverage universe)
Company Remarks
Patel Engineering Given the fact that Q4FY11 was an exceptionally good quarter on account of
sub contracting income and real estate revenue recognition, we expect PEL to
post revenue decline of ~38% YoY in Q4FY12. We highlight that we stay
cautious over muted order inflow with no growth in the order book since the
last couple of quarters
Simplex Infra SIL bagged orders worth ~| 2500-3000 crore in Q4FY12 (excluding L1 orders
of ~| 1600 crore). With a strong order book and strong execution in
domestic revenues, we expect SIL to post robust topline growth of 19.3% YoY
in Q4FY12. EBITDA margins, however, are expected to remain subdued at
8.5%
Supreme Infra Supreme is expected to report impressive topline growth of 34.9% YoY on
account of superior execution. The bottomline, however, is expected to
witness a decline of 5.9% YoY on account of higher interest expenses. The
company has also received orders worth | 619 crore (including L1 orders
worth | 274 crore)
Unity Infra Unity is expected to report revenue growth of 15.4% YoY in Q4FY12. The
bottomline is also expected to witness handsome growth of ~12.7% YoY.
Unity has been declared H1 for BOT project for (69 km Punjab Haryana Border
Jind section of NH-71 worth | 438 crore
Source: Company, ICICIdirect.com Research,
Exhibit 22: Company specific view (Infrastructure coverage universe)
Company Remarks
GMR Infrastructure We expect GMR to again post losses given the high depreciation and interest
expenses of DIAL and poor PLF across power projects. During the quarter,
GMR has stalled its plan for expansion of 1370 MW thermal power project at
Chhattisgarh due to lack of availability of coal. The quarter could witness
some write-off on account of the same, which we have not accounted for
GVK Power We estimate GVK will report a decline of 3% YoY in revenue mainly on
account of lower PLF across plants due to restricted gas supply. The company
is expected to report a loss of | 9.2 crore mainly on account of lower profit
from associate from BIAL, which had maintenance shutdown of seven hours
daily for 20 days in March
IRB Infrastructure We expect IRB to report flattish topline growth of 0.5% YoY on account of
lower construction revenues post completion of Surat Dahisar & Kolhapur
IRDP projects. Hence, the bottomline show is also expected to be muted.
With no project wins post Ahmedabad projects, the management
commentary on strategy for bidding, going ahead, would be key
JP Associates We expect JAL's cement division to perform better in Q4 FY12. We expect
division revenues to grow 34.3% YoY to | 2106 crore (volume to grow 30%
YoY to 6 MT in Q4FY12). However, we expect construction revenues to
witness a decline of 16% YoY given the order book size. This coupled with
higher interest & depreciation, makes us believe JAL’s net income will decline
by 51% YoY
Sadbhav Engineering Sadbhav has emerged L1 bidder for two BOT road projects – the 83 km
Gomati ka Chauraha - Udaipur section worth | 1280 crore and 111 km
Solapur-Bijapur section worth | 1220 crore. This has largely allayed concerns
over order book visibility. We expect Sadbhav to report a decline of ~31% in
topline as most of its major projects under construction have achieved
completion. Consequently, the PAT is also expected to decline 26% YoY
Source: Company, ICICIdirect.com Research,
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