Infrastructure companies going slow on highway projects

September 13, 2012

Faced with a tough business environment, infrastructure and construction companies are treading cautiously on tollways and build, operate and transfer mode (BOT) PPP projects of the National Highway Authority of India (NHAI).

They now prefer the engineering, procurement and construction (EPC) mode projects .

IVRCL on Monday indicated that it has decided to take a holiday from bidding for BOT projects to focus on EPC. This is not an isolated case; most infrastructure companies are in a pause mode re-strategising looking at EPC projects.

Interaction with leading infra sector firms shows that they are all faced with difficulties of high interest costs, challenges of achieving financial closure, as banks and lenders have hit sectoral cap, and have been demanding more equity in a market where equity is hard to come by.

M. Gautham Reddy, Executive Director of Ramky Infra, said the number of projects that have come up for participation are less and companies have become extra cautious, given the market conditions. They are looking at the opportunity to take up EPC mode projects where NHAI will pump in funds.

The Chief Financial Officer of Madhucon Projects, S. Vaikuntanathan, said most companies enjoy being EPC contractors, but NHAI wanted BOT projects, forcing developers to take to them.

“Developers are facing difficulties in meeting the equity requirements for BOT projects as equity markets have dried up and foreign investors are wary to come in. Most developers want to exit, making it a tough situation,” Vaikuntanathan said.

Madhucon has nine road projects with four being operational, three under development, and two close to financial closure.

T. Adi Babu, Chief Operating Officer, Finance, Lanco Infratech, said with lenders demanding higher equity participation up from 25 to even 40 per cent, difficulties in securing right of way and local implementation issues, are all creating problems for developers.

AGGRESSIVE BIDDING

“The aggressive bidding in the past by some companies is also taking a toll. All projects are not like the Gurgaon highway,” he felt.

R. Balarami Reddy, Executive Director Finance, said the traffic projections are often high and this causes unexpected expectation from developers. This is also one of the reason why NHAI needs to look at PPP mode projects closely and restructure contracts.

An independent regulator would help.

[email protected]

SOURCE: http://www.thehindubusinessline.com

Written by ITW Editor · Filed Under News

Better than peers

September 6, 2012

While the construction sector is going through a rough phase for the last two financial years, Simplex Infrastructure Ltd has done relatively better than its peers like IVRCL Infrastr-uctures and Projects Ltd, NCC and Hindustan Construction Co. Not only has the company exhibited consistently strong execution with topline growth of over 20 per cent, but it has also witnessed lesser pressure on the bottomline despite high interest costs. However, with increasing exposure to BOT (build-operate-transfer) projects, the company’s debt levels are on the rise, which is seen as the biggest risk.

Nevertheless, analysts remain positive on Simplex despite the challenges continuing for the construction sector. Says Parvez Akhtar Qazi, analyst at Edelweiss Securities: “Simplex is one of the few pure contracting plays available in the construction industry.” Adds Deepak Purswani, analyst at ICICI Direct: “Its strong well-diversified order book, relatively lower equity commitment towards subsidiary and execution capabilities make it a strong candidate for re-rating in multiples when the macro environment improves.” The stock, which has done better than its peers (except for IVRCL, which had gained on news of possible takeover Essel group) in the last one year, is likely to sustain its lead going ahead.

Consistently better performance
Simplex exceeded analysts’ expectations in the June quarter, wherein its performance was even better compared to FY12. The June quarter was the fourth consecutive quarter of revenues growing in excess of 25 per cent. The company has been able to report better performance (compared to its peers) partly due to its well-diversified and balanced order book in terms of sectors, clients and geographies.

SIMPLEX: HEALTHY OUTLOOK
In Rs crore	FY13E	FY14E
Net sales	6669.3	7459.7
% change y-o-y	13.1	11.9
Operating profit	591.7	663.0
% change y-o-y	29.0	12.1
Net profit	103.8	118.0
% change y-o-y	16.4	13.6
EPS (Rs)	21.0	23.8
P/E (x)	9.1	8.0
E: Estimates

The top three sectors contribute 70 per cent of total order book with building and housing (25 per cent) having the biggest contribution followed by roads and power (each 23 per cent). Also, the company has lower presence in capital intensive and high gestation BOT projects. Says Nitin Arora, analyst at Angel Broking: “Simplex is a well-diversified player in terms of sectors, geographies and client mix and, unlike its peers, has limited exposure to road BOT assets.”

HOW THEY STACK UP
In Rs crore	Simplex		IVRCL		NCC*		HCC
In Rs crore	FY12	Q1′ FY13	FY12	Q1′ FY13	FY12	Q1′ FY13	FY12*	Q1′ FY13
Net sales	5,897.6	1,585.3	4,971.0	NA	6,665.0	1,793.0	8,158.0	969.4
% change y-o-y	23.8	25.7	-12.0	NA	7.0	11.9	14.1	-8.4
Operating profit	458.6	126.9	377.0	NA	897.5	204.5	423.5	68.9
% change y-o-y	-2.5	5.7	-26.6	NA	25.5	-40.7	-26.0	-50.1
Net profit	89.2	20.1	36.0	NA	54.9	20.3	-364.0	-40.5
% change y-o-y	-27.6	-16.5	-77.2	NA	-75.0	-35.0	NA	PTL
* Consolidated; NA is not available; PTL is Profit to Loss Source: Companies

But, some concerns emerging
Though the company’s order book of Rs 15,500 crore gives revenue visibility of 2.3 times (based on FY13 estimated sales), the same has grown only 5.5 per cent since FY11-end. Also, 55 per cent of total order inflow (Rs 1,870 crore) in the June quarter was from in-house road BOT project. With slowing economic growth, order inflows remain a concern across the sector, including for Simplex. The management expects order inflow and order book to remain flattish if the environment continues to remain challenging. Acco-rdingly, it has given a top line growth guidance of 10-15 per cent in FY13 despite good show on the topline front in the June quarter.

Further, the company’s debt at Rs 2,400 crore as on June 30 was higher than Rs 2,130 crore at FY12- end. Its debt to equity ratio at 1.8 times is also expected to rise due to its increasing BOT presence and growing working capital requirements. While it has added two road BOT projects to its existing three totalling to five road assets worth Rs 4,000-odd crore in the June quarter, its working capital cycle also worsened to 132 days as compared to 113 days in March 2012 quarter.

Says Abhinav Bhandari, analyst at Elara Securities: “The present net debt to equity ratio threatens to reach 2.5 times over next four-six quarters considering no major easing in the operating and financing environment, coupled with pending equity infusion across existing assets over the next 24-30 months.” Analysts feel rising leverage could negate the impact of strong topline growth and good operational performance.

SOURCE: http://www.business-standard.com

Written by ITW Editor · Filed Under NCC, News, Simplex

Private Sector Participation In Road Sector

September 6, 2012

Response of private sector to Build-Operate-Transfer (BOT) projects in road sector was overwhelming till 2011-12, but recent response during the current financial year has been comparatively subdued.

A record length of 7957 Kms of roads was awarded for strengthening/upgradation and improvement during the financial year 2011-12. The primary reason is lack of availability of finance, many banks having reached the sectoral ceiling prescribed by the Reserve Bank of India. Infrastructure developers are finding it difficult to raise equity. Delays are also due to delay in land acquisition process and in obtaining environment and forest clearances. Such delay in the actual start of the project adds to the expense of the project cost due to cost escalation and idling of various resources like manpower, plant and machinery etc. Government has taken a number of steps to minimise procedural bottlenecks and delays.

Ministry of Road Transport and Highways has taken up the matter with all the State Governments emphasizing the need to streamline the process of land acquisition and utility shifting etc, by constituting high level committees under the Chairmanship of the Chief Secretary of the respective States.

A Committee of Secretaries has been constituted under Cabinet Secretary to address inter-ministerial and Centre – State issues such as land acquisition, utility shifting, environment approvals, and clearance of Railways Over Bridges (ROBs). Apart from the above, Confederation of Indian Industry (CII) –Ministry of Road Transport and Highways (MoRTH) Joint Task Force on Roads and Highways also meets regularly to find out ways to minimise procedural bottlenecks and delays. Regular interactions are held with the contractors, developers and financial institutions to address and resolve their concerns. Within the Government, meetings are held at the highest levels to simplify and rationalize procedures.

SOURCE :http://logisticsweek.com

Written by ITW Editor · Filed Under News

347 road projects delayed due to delays in green clearances

September 6, 2012

As many as 347 road projects including those pertaining to Border Road Organisation (BRO) are awaiting green clearances, the government said today.

“A total of 347 cases including those with BRO are pending for environmental and forest clearances,” Minister of State for Road Transport and Highways Jitin Prasada told Rajya Sabha in a written reply.

However, he said the projects do not involve any cost escalation.

“Majority of the projects are being taken up on Built-Operate-Transfer (BOT) basis, which does not involve cost escalation,” Singh said.

Generally projects are started only after obtaining environment clearance, he said adding the Ministry was constantly pursuing such matters with Ministry of environment and Forests ( MoEF).

SOURCE: http://articles.economictimes.indiatimes.com

Written by ITW Editor · Filed Under News