India Construction - Long-term outlook intact - Anand Rathi

Revenue growth due to robust orders. Companies we cover are likely to register 11.7% yoy revenue growth (25.8% qoq). Some such as Supreme Infrastructure, J Kumar Infraprojects and KNR had secured a vast chunk of orders in FY13 and are expected to record strong revenue growth yoy. Growth for Pratibha and Simplex could, however, be lower due to piled-up unbilled revenue, and delays in payments/clearances in certain projects, causing execution slippages.

EBITDA, profit-growth trend declines. We expect the EBITDA margin to decline ~50bps yoy, and improve ~20bps qoq, on average. Yoy margins of NCC, J Kumar and Simplex are likely to improve, while those of Supreme, Pratibha and KNR could dip. Aggregate net profit could decline an average 20.3% yoy (up 57% qoq). With an increase in working capital days, we expect debt of most of the companies would have risen, increasing interest costs. Thus, despite strong revenue growth, net profit growth of some companies could be restrained.

Our take. The sector is likely to gain some attention from policy makers, given the upcoming elections. From a medium- to long-term perspective it is still attractive. The government's continuous efforts to improve the funding situation in infrastructure and the clearance of many infrastructure projects would provide a further fillip to the liquidity-starved construction sector. Key monitorables: Execution, order-book growth, debt profile and the workingcapital cycle.

Top picks. NCC, J Kumar Infraprojects and Simplex.

Source : Equity Bulls

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