ƒConstruction & Infrastructure ƒ Reforms spree to boost tormented sector… :Q3FY15 Result Preview : ICICI Securities, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

--> Construction & Infrastructure
ƒ Reforms spree to boost tormented sector…
The government has made significant policy changes to revive the
construction and infrastructure sector in Q3FY15. Cabinet approval for
FDI norms in construction sector, RBI extending its flexible refinancing
and repayment option for long-term infrastructure projects including
stressed projects where the total exposure of lenders is more than
| 500 crore and recent amendments to the Right to Fair Compensation &
Transparency in Land Acquisition, Rehabilitation and Resettlement Act,
2013 were the big steps taken by the government to boost infrastructure
development. Now these measures would not only lead to better
liquidity and execution but also fetch better asset valuation for
infrastructure players. Nonetheless, we believe the impact of these
measures will be visible only in the medium term.
ƒ Order inflow to gain traction now…
We highlighted in Q2FY15 that in the current financial year 8,500 km of
road projects were expected to get awarded, including NHAI’s 5,500 km
(3,500 km under EPC and 2,000 km under BOT) and ministry’s 3,000 km.
In Q3FY15, only 500 km of road projects under BOT have been
awarded. We expect the remaining 1,500 km of BOT projects to get
awarded in Q4FY15. Also 2,500 km of EPC projects recently came up for
bidding in December 2014 and January 2015 due to lack of clarity on
delegation of power to ministry earlier. However, now we expect
remaining projects along with re-bidding of stalled projects to roll out in
Q4FY15. We believe Ashoka Buildcon, Sadbhav Engineering and IRB
Infrastructure would be key beneficiaries of these opportunities.
ƒ Debt continues to remain overhang for infrastructure sector…
Though we believe there will be greater rewards in the long run, high
leverage continues to remain the pain area for the sector. The low and
falling corporate profitability is a reflection of the over indebtedness of
the corporate sector, which is one of the highest globally. This high debt
overhang is unlikely to lead to any capex recovery cycle in the near
term. Nonetheless, players like Jaiprakash Associates, IVRCL, etc. are
making efforts to de-leverage their balance sheet via asset monetisation
while a few others are taking the QIP route.
ƒ Construction universe – expect growth of 24.6% YoY in Q3FY15E
The revenue growth of the construction coverage universe is expected
to grow at 24.6% YoY in Q3FY15 led mainly by 43.6% and 19.0% YoY
growth in NCC’s and NBCC’s revenue, respectively.
ƒ Infrastructure universe – muted growth of 2.3% YoY in Q3FY15E
We expect the revenue of our infrastructure universe to witness muted
growth of 2.3% YoY mainly due to 5.7% de-growth in revenues of
Jaiprakash Associates. However, we expect revenues of Ashoka and
IRB to grow at 31.3% and 17.3% YoY, respectively, mainly due to
commissioning of new projects, toll hike, etc.
ƒ Highly leveraged balanced sheet impacting bottomline…
Owing to an increase in interest expense, we expect our infrastructure
universe to report a loss of | 18.4 crore mainly on account of | 183.9
loss by Jaiprakash Associates. Interest, as percentage of revenues,
continues to remain high at 22.6% in Q3FY15E vs. 22.3% seen in
Q3FY14.

Company specific view (Construction coverage universe)
Company Remarks
NBCC NBCC's order book stands at ~ | 18,600 crore, which implies a TTM order book
to bill ratio of 4.5x, providing strong revenue visibility, going ahead. Hence, we
expect topline to grow at 19.0% YoY to | 1181.0 crore led mainly by 23.9% YoY
growth in PMC division to | 1017.5 crore. However, we expect NBCC to post EBIT
margin of 6% in PMC division and 22% in real estate division; leading to 7.0% EBIT
margin on a blended basis. Consequently, its net profit may grow 24.3% YoY to |
69.4 crore.
Key monitorable: Execution of PMC division and pick up in real estate division
Simplex Infra We anticipate Simplex will bag orders worth | 1200 crore in Q3FY15 while its
topline is expected to grow 8.4% YoY to | 1510 crore. Also, we expect Simplex to
post EBITDA margin of 11%. The bottomline, however, is expected to grow 25.8%
YoY to | 19.1 crore. The management is targeting a debt reduction through
collection drive.
Key monitorable: Management commentary on execution and debt reduction
NCC NCC currently has an order book of | 20,400 crore, which implies a TTM order
book to bill ratio of 2.9x. We expect NCC to report a topline growth of 43.6% YoY
to | 2,137.5 crore and EBITDA margin of 8% on the back of current order book
visibility. However, we expect it to post net profit of | 30.9 crore as compared to
loss of | 7.3 crore in the same quarter last year.
Key monitorable: Debt level and execution
Source: Company, ICICIdirect.com Research

: Company specific view (Infrastructure coverage universe)
Company Remarks
Ashoka Buildcon Ashoka is expected to post a topline growth of 31.3% YoY to | 549.5 crore. It's
construction division is expected to grow by 40.9% YoY to | 449.1 crore mainly
due to addition of two new projects viz. Chennai ORR and Karnataka State
Highway. Also its BOT revenue is expected to grow by 43.2% YoY to | 100.4 crore
mainly due to toll collection from two new projects viz. Belgaum and Sambalpur.
Consequently, its bottomline is expected to grow 9.7% YoY to | 36.8.
Key monitorable: Traffic growth on ACL's project and NH-6 route
Jaiprakash
Associates
In Q3FY15, Jaiprakash Associates was finally able to monetise few of its assets
which it was planning since long. JSW Energy has acquired two of Jaiprakash
Power's operating hydro power plants, viz. Baspa-II and Karcham Wangtoo plant
for | 9700 crore. JAL also sold two cement units and associated power plants in
MP to UltraTech Cement for | 5400 crore. However, we believe it would take time
for these asset monetisation to finally fructify into debt reduction and
improvement in earnings. Hence, in terms of Q3FY15 financial performance, we
expect JAL to post 5.7% decline in topline to | 2959 crore. Also we expect it to
report losses of | 183.9 crore mainly due to weak operational performance.
Key monitorable: Asset monetisation and debt reduction
IRB Infrastructure In Q3FY15, IRB’s gross toll revenues may grow 18.2% to | 517.8 crore largely on
account of a hike in Mumbai-Pune, Bharuch-Surat, Surat-Dahisar and contribution
from new project commissioning. Consequently, revenues are expected to grow
by 17.3% YoY to | 1029 crore. Overall, bottomline is expected to grow by 18.7%
YoY to | 128.8 crore.
Key monitorable: Execution of construction division
Source: Company, ICICIdirect.com Research

LINK
http://content.icicidirect.com/mailimages/IDirect_ConsolidatedPreview_Q3FY15.pdf