Infrastructure firms see order inflows turn north

Most of the infrastructure companies fell short of their targeted order inflows in the second half of 2010-11. As a result, they missed the target for the fiscal as a whole too.

The bleakness spilled over to the first three months of the current fiscal too, thanks to a cocktail of factors like delays in environmental clearances, slowdown in investment demand in the private sector and rising interest rates.

Hindustan Construction Company (HCC), for instance, booked fresh orders worth `1,000 crore between April and June. “Our aim was to get `2,500 crore orders every quarter but the last nine months have not been great,” said its chief financial officer Praveen Sood.

His counterpart at Era Infra Engineering, Joy Saxena, echoed his view. “There have been a lot of scams so not much has happened on the projects front.”

However, infra companies and experts believe inflows could be on an upswing in the latter part of the year. Era has an order book of about Rs10,500 crore and is pre-qualified for projects worth over Rs25,000 crore. Saxena said the company’s discussions with various arms of the government that award infrastructure projects indicate that projects will be fast-tracked in the coming months.

“The NHAI (National Highways Authority of India) has started awarding the mega projects. This could be the start of a new cycle,” Sood said. HCC has a backlog of Rs17,000 crore, while being the lowest bidder for contracts totalling Rs2,000 crore.
Mega highways are those costing over Rs5,000 crore or having a length of 500 km or more.

GMR Infrastructure on July 29 bagged the Rs5,700 crore stretch between Kishangarh in Rajasthan and Ahmedabad. This is India’s largest-ever highway project and first mega highway. The NHAI has since awarded four more projects with a total value of Rs6,850 crore.

Venkatesh Balasubramaniam, Atul Tiwari, Deepal Deliwali and Rishi V Iyer of Citigroup Global Markets wrote in a July 24 report that a capex slowdown in the second half (H1)  of 2010-11 does not mean there is one even in H1 or H2 of the current fiscal.
BG Raghupathy, chairman and manging director of Chennai-based BGR Energy Systems, a contractor for power projects, bore them out.

“We are positive about the next two quarters. We are bidding for `60,000 crore worth of orders,” he had earlier noted. BGR has orders worth `8,000 crore, a drop of 23% from March 2010. Last fiscal, the company bagged just Rs4,700 crore worth of projects compared to its estimation of Rs12,000-15,000 crore.

According to a July 20 report by brokerage Prabhudas Lilladher, construction companies have seen a downward shift in inflows in the last 4-5 quarters.

“Total orders announced in Q1 are close to Rs25,000 crore, which is a cut of nearly 30% year-on-year,” Rupa Shah wrote in the report. But there are several projects scheduled to be awarded this year, including 6,300 km of highways worth Rs63,000 crore.

The Citigroup analysts said that though order booking remains sluggish, several of the government’s actions could be considered encouraging. They include environmental clearances for nine coal blocks in the no-go zone; lifting the comprehensive environment pollution index (CEPI) for 23 out of 43 coal blocks; and the prime minister’s call for a meeting to assess the coal and power situation in the country.

But what could be a dampener is the high interest rate scenario. The RBI has since March 2010 hiked the rate at which it lends to banks by 3.25 percentage points to 8%, with the latest (0.5 percentage points) coming on July 26.

RS Garg, CFO, Ramky Infrastructure, said the hike in rates might not have much of a bearing on order booking but could impact companies’ bottomline. “Working capital loans are costing 1.5 percentage points more than last year,” he said. Ramky bagged Rs1,000 crore orders in Q1.

Talking of raising long-term debt from banks for developmental projects, HCC’s Sood observed, “It’s not difficult for a company with a good track record to raise money. But banks are concerned about NPAs (non-performing assets) and their due diligence has become more rigorous.”