Road Infrastructure - Q4FY12 Result Preview - Centrum

Competitive intensity likely to continue

FY12 ended with NHAI awarding 6,491Km (highest ever). We believe, the momentum will continue in FY13 & FY14 and hence the intense competition to persist. Issues faced by developers on financial closure, land acquisition, etc could dampen FY13 & FY14 execution. For Q4FY12, we expect the companies in our coverage to post revenue growth of 18.7% QoQ but a decline of 6.3% YoY and EBITDA growth of 6.7% QoQ, primarily driven by robust performance of Sadbhav Engineering. However, net profit is likely to increase 7.8% and 9.0% both YoY and QoQ respectively. We maintain our preference for diversified players like ITNL (IL&FS Transportation Network), and remain neutral on IRB (IRB Infrastructure) and Sadhabav Engineering. With this update we are transferring the coverage of road developers from Manish Kayal to Siddhartha Khemka.

- FY12 NHAI award at all time high of 6,491kms: NHAI closed FY12 registering a growth of 28.3% in road projects with awards totaling 6,491kms (vs. our expectation of 6,080kms) across 49 projects. Including project awards from State authorities and MoRTH, a total of 62 projects totaling to 7,957kms were awarded during FY12. For FY13, the target for new road projects has been set at 8,800kms (a 10.6% YoY growth). We expect the momentum to continue in FY13 with the award of 7,300kms by NHAI.

- However, competitive intensity remains and continues to dent profitability: We maintain our stance held since sector initiation that the competitive intensity in the road development sector will remain going forward denting project level IRRs. We still observe 25-30 bidders at RFQ stage and 10-15 bidders at financial bidding level. Though, smaller players are facing difficulties (like financial closure issues, stretched balance sheet, CDR, etc), we believe the entrance of new players, especially large corporate groups like Welspun-Leighton, Ashok Piramal Group, Essel Infra will continue to maintain high competitive intensity.

- Coverage companies Sadbhav Engg and ITNL bag projects in the quarter: Sadbhav Engg bagged 2 NHAI projects 1) Solapur – Bijapur (110Km, TPC Rs12.2bn) and 2) Gomati ka Chouraha to Udaipur (82Km, TPC Rs12.8bn). ITNL also bagged 2 projects namely 1) Kiritpur to Ner Chowk (113Km, TPC Rs18.1bn) and 2) Kharagpur to Baleshwar (119Km, TPC Rs4.7bn). We believe Gomati-Udaipur project bagged by Sadbhav is risky because there are parallel stretches owned by GMR on the right side (NH8) and L&T on the left side.

Source : Equity Bulls

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