Infrastructure push gives a fillip to private firms

Notwithstanding the slowdown seen in some pockets of the economy and a not so encouraging monsoon, greater spending by the government, particularly in the infrastructure space, is seeing significant money flowing into the private sector as the country moves closer to General Election next year.

The ambitious Rs 1 lakh crore station development project has just kicked in with private players getting a share of the pie for the initial phase of the project. Spending on irrigation, airport development, and affordable housing is also turning beneficial for the private sector.

Such government-sponsored spending would be prominent in the western part of the country, says India Ratings. This would have a positive impact on sectors such as cement, construction, irrigation, railways-related industry apart from indirect beneficiaries like the steel sector.

"Stable outlook on cement manufacturers for the remainder of FY19 is driven by a healthy growth forecast across end-markets such as affordable housing, roads and irrigation sector, which would help in sustaining strong volumes. The western region is likely to be high on account of speeding up of Dedicated Freight Corridor projects, Mumbai metro rail project, and road and irrigation projects, due to the upcoming elections in Maharashtra in September 2019," says India Ratings on the prospect of the cement sector.

Higher spends on infrastructure along with a revival in the rural economy are expected to boost cement demand by 8% during FY18-20, which coupled with just 3% growth in supplies expected in this period would drive utilisation and pricing, says the outlook on UltraTech by ICICI Securities.

Subsidy funds released by the government has benefited cement companies operating exclusively in the north-eastern region, which has pushed infrastructure development in the region.

Star Cement is one such player which has recently received Rs 25 crore for the freight subsidy backlog under the North East Industrial and Investment Promotion Policy scheme.

"The subsidy backlog clearance has accelerated over the past 12 months which has considerably reduced the outstanding on books thus strengthening the balance sheet," a research report by Centrum says.

Perhaps the biggest push is coming from the Railways, where marquee projects like mega station development initiative, the dedicated freight corridor and also the bullet train project are leading the flurry of investments.

NBCC, a state-owned construction player, had earlier got the mandate to redevelop 10 railway stations into world-class facilities at an investment of Rs 5,000 crore.

The project is part of the ambitious initiative to redevelop 400 stations through a self-financing model by exploiting commercial establishments around it.

About Rs 96,000 crore is expected to be invested, of which Rs 68,000 crore would go into station developments and Rs 28,000 crore in commercial establishments like budget hotels.

The money is already trickling in with Ahluwalia Contracts, a listed entity, winning a sub-contracting order worth Rs 538.76 crore from NBCC for construction of revamped Charbagh Railway station at Lucknow.

NBCC has also started work on Gomti Nagar station while work on other stations like Thane, Delhi Sarai Rohilla, Lucknow, Kota, Tirupati, Nellore, Ernakulam, Puducherry and Madgaon would be taken up later.

Each of these stations will have a modern terminal building, segregated arrival and departure zone, passenger lounge areas, food courts, shopping zones while some like Charbagh station would also have a budget hotel within the premises.

Construction major L&T expects project execution momentum to remain strong in FY19 with the government giving a push for faster project completion prior to the elections, it told analysts during the earnings conference call.

Recovery in the commercial vehicles sector, led by the truck segment since the beginning of the second quarter of 2017-18, has happened partly because of several government initiatives.

"It is expected that growth momentum in the truck segment will sustain in the current fiscal, supported by the government's focus on infrastructure projects, higher demand from consumption-driven sectors helped by the adoption of the hub-and-spoke model of distribution by more business enterprises due to new GST law," a research report on commercial vehicle maker SML Isuzu says.

"The bus segment is also expected to grow, after a year of sharp contraction, supported by replacement-led demand and government thrust on the improvement of transport systems in urban areas as well as in the rural sector," a report prepared by Rudra Shares and Stock Brokers says.

The affordable housing sector is also benefitting from the government's Credit Linked Subsidy Scheme under Pradhan Mantri Awas Yojana with a vision of housing for all by 2022.

The push further got a boost with the government extending the interest subsidy on home loans under the affordable housing subvention scheme till March 2019.

Banks and housing finance companies, for projects between June 2015 till June 2018, have provided Rs 3,627.30 crore of subsidy to first-time home buyers for 1,68,417 dwelling units, as per data provided by Gruh Finance, the affordable housing finance arm of HDFC.

This has created a ripple effect in the economy creating employment and demand for a host of products from cement to home furnishings.

RAILWAYS STATION REDEVELOPMENT PROGRAMME

• 400 – Number of stations 
   
• 2,700 – Total land (acres)
   
• Rs 28,000 cr – Station development 
   
• Rs 96,000 cr – Commercial development

Source: Railways Ministry

ON RIGHT TRACK

Biggest push is coming from the Railways, where marquee projects are leading the flurry of investments