Moneycontrol PRO
Check Credit Score
Check Credit Score
HomeNewsBusinessStocks

India infrastructure sector crossing the chasm: Emkay

Emkay expects the road development sector to see pick up in tendering - immediately from EPC and post FY16E, from BOT. "Our top pick in the sector are L&T, Jkumar Infra while we have accumulate rating on NCC, Simplex Infrastructure, Ahluwalia Contracts, says the research firm.

October 16, 2014 / 12:55 PM IST
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Emkay's report on Indian infrastructure sector

With the formation of a stable–pro investment-oriented government, we expect investor focus to shift from near term earnings/orders to long-term cycle recovery prospects. We believe that the potential for a cycle recovery is high but the will commence by FY16E only, given the constraints of fuel, land acquisition and weak balance sheets of the infrastructure players. However, these issues are being addressed and we see concerns gradually subsiding.

We have identified three major investment themes within the infrastructure sector - Highways/Roads, Ports and Core construction. 

Highway/Road sector:

Expect the road development sector to see pick up in tendering - immediately from EPC and post FY16E, from BOT

NHAI plans to tender 2,300 kms via the EPC route, which will revive tendering activity in the road sector. It has already tendered 2000 kms through EPC route till date

Redrafting of the Model Concession Agreement (MCA) to be a major game changer. New MCA to provide NHAI with more authority on handling stalled bids, inviting re-bids and terminating projects that fail to meet necessary criteria.

Pursuant to the redrafted MCA coming into play (by end-FY15E), we expect a sharp upsurge in re-bidding activity in the BOT space alongwith reduced competitive bidding.

Prefer large BOT players like IRB Infrastructure, Sadbhav Engineering, Ashoka Buildcon because of their strong road-asset portfolio, stable order-books, no cash flow mismatch and capacity to generate growth capital. We retain a hold rating on ITNL due to leverage issues.

Port Sector:

Expect container volumes to grow at 8.1% CAGR over FY14-16E on the west coast mainly due to a) improvement in the overall exim cycle, and b) large shipping lines MSC and Maersk developing Indian ports as a trading hub.

Private ports to continue their growth trajectory and garner a larger share of the incremental container traffic due to a) inability of the major ports to take on additional container traffic due to capacity constraints and b) traffic diversion from NSCIT terminals (NhavaSheva)/GTI terminal at JNPT.

We expect Adani Port and Gujarat Pipavav to benefit immensely from the estimated 1.33mtues incremental container volumes and gain incremental market share of 3.6% and 1.6% over FY14-16E. We recommend a BUY on Adani Port and Hold on Gujarat Pipavav

Core Construction Sector:

Expect the new government to focus on reviving stalled projects. However, expect tendering to gain momentum with a lag (from FY16E onwards)

Expect highways, railways (Dedicated freight corridor and metro projects) and defense sectors to be the major contributors to fresh tendering. In the highway segment, we estimate USD 4.9bn worth projects to come for re-bidding (BOT Mode), USD 2-3bn from fresh tendering under BOT mode and around USD 3.4bn under EPC mode. In the defense sector, orders above USD15-20 bn to be lined up for tendering, largely under the 'Buy and Make Indian' category.

The construction companies who have taken proactive steps during the last 3 years of stress by way of a) selling the assets (NCC) b) focusing on the core construction business(not participated in the bids of the asset business (NCC, simplex Infrastructure) c)correcting capital structure – L&T d)not bidding aggressively (J Kumar Infrastructure, Ahluwalia contracts) will remain immediate beneficiaries of any revival. Our top pick in the sector are L&T, Jkumar Infra while we have accumulate rating on NCC, Simplex Infrastructure, Ahluwalia Contracts.

For all recommendations, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

Advisory Alert: It has come to our attention that certain individuals are representing themselves as affiliates of Moneycontrol and soliciting funds on the false promise of assured returns on their investments. We wish to reiterate that Moneycontrol does not solicit funds from investors and neither does it promise any assured returns. In case you are approached by anyone making such claims, please write to us at grievanceofficer@nw18.com or call on 02268882347