The returning execution efficiency/profitability notwithstanding, the continuing impact of the Covid-triggered disruption is a manifestation of realigned priorities, and cost checks put in place. The continuing healthy awarding, recent additional relief measures under Atmanirbhar Bharat 3.0 and steps taken to make the hybrid annuity model more conducive indicate that policy-makers retain focus on the sector. These efforts are appreciated and augur well for better times ahead. Consequently, Anand Rathi retained their long-term constructive view on Infra Sector but still chose to remain selective. With this, Anand Rathi present their Q2 FY21 review and recent tendering/awarding trends. Anand Rathi top picks are KNR Constructions, PNC Infratech and Ahluwalia Contracts in the infra sector, all companies have strong balance sheets, ample assurance and execution abilities, companies are likely to emerge from Covid-19 situation even stronger going ahead.

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Infrastructure Sector - Making a return from the Covid-19 pandemic:

Q2 FY21 blended actuals ahead of consensus; some stand out. Capital (well-set balance sheet), capacity (proven execution abilities) and character (intent to grow, corporate governance) are key traits which appear to run across Q2 FY21 performers. Of the fifteen names with comparable consensus estimates, revenues for 10 companies while EBITDA margins for 9 were ahead of consensus. Profitability was better for 12 names. In absolute terms, revenues were 4.5% ahead; EBITDA, 7.5% higher. Aggregate earnings were Rs 3.9 bn, against the consensus of Rs 5.6 bn (impacted by IRB Infra and ITD).

Sector, key focus; relief measures continue:

The recent relief measures announced under Atmanirbhar Bharat 3.0 augur well and highlights the government’s continued focus on the sector. Changes in the revised model concession agreement for hybrid annuities, though mostly effective prospectively, are still good for the sector, addressing key drawbacks of the old agreements and then some. Eased exit timeline for subsisting hybrid annuities too augurs well, as this would help in the early release of capital.  

New announcements, comforting:

Though down from Rs 910 bn in Sep 20 to Rs 764 bn in Oct’20, 53% ahead of the first half of FY21 monthly average of Rs 498 bn. With the private sector not yet ready to fully commit, the government, with Rs 444 bn, was the key contributor.

Oct’20 tenders, no dearth of opportunities:

Oct’20 tenders floated of Rs 613 bn were the second highest in FY21 and compared favourably to FY20’s monthly average of Rs 432 bn and Rs 557 bn for first half FY21.

Oct’20 awarding, up yoy as well as mom:

At Rs 438 bn, Oct’20 awards were the highest since Mar’18’s Rs 808 bn. The better mom and yoy performance was largely fuelled by the first package from the Mumbai-Ahmedabad high speed rail project. Adjusted for this, Oct’20 awards of Rs 188 bn were still the second highest in FY21 awarding. Of the categories, railways, communication services and power & mining hold the key to Oct’20 performance.