INSUBCONTINENT EXCLUSIVE:
By Mangesh BhadangCalendar 2019 is going to be a paradoxical year for the infrastructure sector, thanks mainly to the general elections
scheduled to be held in the middle of the year
On one hand, contractors and politicians would like to complete ongoing projects at the earliest and on the other, election code of conduct
is likely to slow down the project awarding process and land acquisition will come to a halt
So, we may expect frantic execution as well as awarding activity in March 2019 quarter followed by a temporary lull
Having said that, our view is that irrespective of whose government is at the centre, infrastructure building activity will continue to be
pursued vigorously over the next decade to achieve higher GDP growth rates.
Roads, railways, metros will attract maximum investmentWithin
the infrastructure gamut, we expect roads and railways to continue to garner a larger share of the total investment pie
During FY18, MoRTH along with NHAI awarded 17,055 km and constructed 9,829 km roads
During FY19, the target is to achieve 20 per cent growth over FY18 in terms of awarding and 45 km a day in terms of construction
Given that many projects awarded during FY18 have struggled to achieve financial closure, current year targets will be tough to achieve, but
we expect awarding activity to start again in H2CY19.
For railways, electrification, station development and port connectivity projects will
continue to offer large opportunities
Metro will continue to offer EPC opportunities to various construction players, as more than 25 cities in India will have metro rail
networks in the coming years
Policy and regulatory environment has seen continuous improvement, but private participation is still lagging.
The policy and regulatory
resolution, 2) availability of funding (through multilateral agencies and bonds), 3) large scale programmes like Bharatmala, UDAY, UJALA,
UDAN etc and 4) schemes like INViTs, REiTs.
Despite easing regulations, private investment has lagged substantially in the infrastructure
space, largely due to unwillingness or lack of capacity of banks to fund these projects
Given the stress in the banking space, we expect private participation to remain subdued, but higher public spending should more than make
up for it.
Interest rates may pose risk to asset ownersGiven the trend of hardening global as well as domestic interest rates, asset owners
in the infrastructure space will see some deterioration in value of their assets.
Given that most PPP projects are capital intensive, it is
likely to result in availability of lower cash flow for reinvestment.
Overall outlookAs mentioned earlier, general elections remain a key
event for the infrastructure sector
Continuity of government is likely to lead to continuation of policies and, thus, result in lesser hindrances and speed in execution
On the other hand, a change in government might result in a temporary blip.
Luckily for the industry, most construction companies are going
in to this event with their order books at 4-6 times trailing revenues, which suggest even if there is a draught in project awards
temporarily, under-construction projects will take care of near-term revenue growth and, thus, earnings impact will be negligible.
(Mangesh
Bhadang is Research Analyst for Cement and Infrastructure at IDBI Capital
