Mumbai: Infrastructure companies are likely to report sharply declining profits in the March quarter, with higher debt repayment obligations paring margins, despite sales rising on end-of-year spending, analysts said.
The fiscal fourth-quarter usually sees strong sales with governments using budgeted funds that have to spent before the year ends. Analysts expect this will help sales this time too, but say the growth would be outpaced by rising interest costs.
Despite the Reserve Bank of India’s (RBI) hefty rate cuts since October, banks and other lenders have not significantly reduced rates and growth in lending has been glacial.
Many infrastructure firms have spoken of the difficulties in tying up funds for long-term projects as risk aversion increases.
This, and the slowing Indian economy, has dragged down infrastructure output, which rose 2.2% in February, a notch above the 1.5% recorded in January, but lower than the 7.0% growth seen a year ago.
“Working cycles are extending. Nobody would want to give money for a very long time,” said Rohit Gupta of brokerage firm KR Choksey. “Creditor days are contracting.”
IVRCL Infrastructures & Projects Ltd’s net profit is seen falling 6% while Lanco Infratech’s is expected to fall 34%, according to a Reuters poll of brokerages.
Net sales growth at IVRCL and Lanco is seen up 25% and 43% respectively, while Gammon India is expected to post a flat net profit from a year ago on sales growth of about 11%, according to the Reuters poll.
Lending rates are likely to fall, but tight funding for build-operate-transfer projects would continue, with concerns on project viability and on low equity contributions, brokerage Edelweiss said in an earnings report.
“The outlook for the sector appears to be challenging over the next 12 months,” it added.
Analysts say any revival is likely only after general elections are over in May and a new government is installed, with a halt in public orders and as private firms hold expansion.
Cooling prices of inputs like steel and cement would provide some relief in the June quarter, analysts said.
“Raw material prices will stabilize,” KR Choksey’s Gupta said. “At least raw material losses will not be there in the first quarter.”