It is well known that the government’s emphasis on infrastructure will help companies such as Hyderabad-based IVRCL Infrastructures and Projects Ltd. A recent report by Nomura Securities had said: “The company is aggressively pursuing BOT (build-operate-transfer) projects in the roads segment. IVRCL is L1 in projects worth more than Rs5,000 crore…."

Proof of that has come in with the company obtaining a Rs1,550 crore road project from the National Highways Authority of India on Wednesday. The firm’s shares moved up smartly on the news.

Until 2008-09, around 60% of the company’s orders came from the irrigation and drinking water segment. But this year should see higher inflows of orders from roads, power and building contracts.

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Analysts’ consensus is that IVRCL has order inflows of around Rs2,000 crore during the third quarter ended December. At the end of September, the total order book was around Rs15,000 crore, which the management hopes to scale up to around Rs22,000 crore by end of 2009-10.

It plans to keep its order book position at around 3.5 times its present turnover. Given the delays in the government contracts and execution, this would ensure a steady growth trajectory in revenue and profits. For example, the political uncertainty in Andhra Pradesh did affect IVRCL’s revenues due to execution delays in first half of 2009-10.

Recall that in November, the group had restructured its business operations following which BOT orders would be undertaken by the IVR Prime Urban Ltd, where IVRCL holds a 80% stake. However, the construction contracts would typically be housed in the flagship company. Hence, for example, while the Rs1,550 crore BOT road contract is technically with IVR Prime, around Rs1,100 crore of construction will accrue to IVRCL Infra.

For the third quarter ended 31 December, IVRCL Infra is expected to post a 20% growth in revenue over the year-ago period of around Rs1,200 crore. However, the 20% project exposure to Andhra Pradesh will also hamper the growth rate. Operating profit margins may drop sequentially and on a year-on-year basis to around 9% as the gains from low commodity prices would have benefited it only until the preceding quarter.

Also, with competition hotting up in the infrastructure segment, especially road and power contracts, the company may have to contend with relatively lower profit margins if it has to keep its order book growing.

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