Mumbai: Construction and building firms are expected to post double digit growth in January-March as an economic rebound and government spending boosts India’s realty sector, industry experts and analysts said.
Between 2007 and 2012, India plans to spend $514 billion -- with private firms contributing 36% -- to overhaul its creaky infrastructure that is an obstacle to achieving faster growth in Asia’s third largest economy.
India’s 2010-11 budget allocated 46% of the total plan allocation amounting to Rs17 trillion for infrastructure development in the country.
According to a Reuters’ poll of 16 brokerages, IVRCL Infrastructures is expected to post a 11.20% rise in net profit and Lanco Infratech a 58.63% jump. However, engineering firm Engineers India is slated to post 19.25% drop in profit.
“Normally, January-March is always the strongest quarter for construction companies,” Shailesh Kanani, an analyst with Angel Broking said, adding that the order inflow “has been good”.
Kotak Securities, in its report, said strong order backlogs will drive revenue growth for construction sector.
HCC’s order book should drive revenues up 22% over fiscal 2010-2012, Motilal Oswal said in a report.
HCC, which won Rs490 crore from tunnelling contracts and metal sector clients this quarter, is expected to post a 10.7% year-on-year growth in sales, brokerage Prabhudas Lilladher said in a note.
Kotak Securities said a pick-up in airport traffic and operating power plants would boost revenue growth for GMR Infrastructure and GVK Power and Infrastructure, but higher interest and depreciation costs will hurt profits.
Outlook Bright After Rains
Analysts see robust orders driving revenue growth in FY11, though the first two fiscal quarters are low revenues ones because the monsoon halts building works.
“The first quarter could be good, but the second quarter could be a dampner in terms of quarter-over-quarter. From a year-on-year point of view, we are expecting around 20-25 CAGR in both the first and second quarter in terms of execution,” Abhinav Bhandari, analyst at Elara Securities, said.
“Over the next few quarters, we expect healthy order backlogs of the companies in our universe to translate into earnings growth,” Angel Securities said.
Motilal Oswal said it expects margins to stay stable through fiscal 2011, impacted by increased commodity prices and higher mobilisation expenses, given bunching up of orders.