Most analysts are expecting robust growth in revenues for infrastructure companies and market sentiment for the sector is positive. Stocks such as IVRCL Infrastructures and Projects Ltd, Reliance Infrastructure Ltd, Lanco Infratech Ltd and Simplex Infrastructure have moved up by 15-25% in the last fortnight.
Order books are full. “Most companies are sitting on a three year (future) order book,” says E. Sudhir Reddy, managing director, IVRCL. His company had an order book of Rs14,900 crore at the end of Q1FY10.
Hyderabad-based Nagarjuna Construction Co. Ltd (NCC) had an order book of Rs13,900 crore at the end of Q1FY10 or about three and a half times FY09 revenues. A report by Edelweiss Securities says that the order book for this sector is expected to remain strong due to government projects. Increased activity in National Highways Authority of India projects, irrigation and power is widely expected. And as a recovery in factory output and industrial activity starts, that will trigger orders from the private sector too. All these factors, say analysts, will lead to a strong top line growth of an average of 22-25% for fiscal 2010 compared with the year before.
Moreover, the September quarter will see relatively higher billing and execution compared to the June quarter as elections (the general election was held in April and May) had slowed down progress during the first quarter.
Infrastructure companies have been one of the prime beneficiaries of the return of liquidity to the markets, as they require funds on an ongoing basis for their projects. Another positive contributor which will shore up profit margins on a year-on-year basis is that commodity prices as well as interest rates are lower when compared with the previous year.
Analysts project the Q2FY10 sales for IVRCL to be higher by 22% at around Rs1,390 crore over the year-ago period. Operating profit margins are expected to improve to around 9.3% from around 8% during the same period last year. NCC’s sales are expected to improve by 10% to around Rs1,160 crore and the company’s profit after tax is expected to improve by around 12% to Rs48 crore. Simplex Infrastructure and Lanco Infrastructure are also expected to turn out a better performance during the second quarter of this fiscal.
Following the run-up in stock prices in the last three months, the FY10 and FY11 earnings across the sector are discounted around 17-20 times and 9-11 times respectively. That is not cheap, but the interest in the sector has ensured higher stock prices despite that.
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