Indian infrastructure - Execuition Valutaion

[sunil]

Revival of execution drives revenue growth: Revenue growth returned in the sector, with the E&C space doing particularly well. Revenue growth was
25-28% in 4Q FY10 vs 10% in 9M FY10. However, the T&D pack (ABB, CRG, SIEM) continued to be a laggard, with flat revenues throughout FY10.

Strong order inflow to drive revenue growth in FY11: Order inflow for E&C companies grew by 46% in 4Q FY10, but on a FY10 basis, large-caps posted
flat order inflow (primarily due to BHEL) and mid-caps reported 47% growth. The order backlog grew by 26% for large-caps and 23% for mid-caps in FY10.The T&D pack had 10% growth in order inflow and 15% growth in order books.

We expect significant revenue growth across the board: We believe that execution revival will help E&C companies to achieve healthy top-line growth of 25-28% in FY11. We believe T&D companies can deliver 14% growth on a good order book backlog in FY10.

Large-cap companies had margin expansion of 100bp in 4Q FY10, which led to a 200bp improvement in FY10 vs FY09. Mid-cap construction had flat margins for 4Q FY10, but registered a 100bp improvement in FY10 vs FY09.

Suzlon and Punj Lloyd were the clear laggards in FY10, with both revenues and margins falling YoY. Suzlon’s order book (which sets the pace for FY11 revenues) is extremely weak, while Punj continues to take write-downs in Simon Carves and cost over-runs for the ONGC project. Moreover, the revenue outlook for FY11 is weak, we believe, because there is no progress on the Libya project (28% of order book).

[chetan]

UBS in its report on India Infrastructure Said,

1) Orders of US$300bn in three years
We expect infrastructure ordering activity (excluding telecom, storage and gas) of about US$300bn in the next three years (an increase of about 60%).
Power/roads/railways are the leading sectors and should contribute 40%/17%/17%.

2) US$500bn spending over the next five years
We believe a 20% pa increase in infrastructure spending is possible over the next five years, led by: 1) strong GDP growth (UBS forecasts 15% pa); and
2) a step up in infrastructure investments from an estimated 4.6% of GDP in FY10 to 5.6% in FY15 (the government’s target is about 8%). We estimate that
infrastructure investments have increased sequentially from FY05 onwards to an average of 4.3% over FY05-09, from an average of 3.6% over FY98-04.
We estimate US$500bn in total spending over the next five years, to be led by power/railways/roads (38%/20%/17%).

What has changed in the past 12 months
1) Strong government focus The central government has introduced a number of measures that demonstrate its seriousness about infrastructure development. Apart from the delays following re-elections (May 2009), there has been progress in project award activity across sectors and a number of policy announcements.