Industrials - Sector Update - Labour Scenario Improving - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

Over the past few weeks since the COVID-19 breakout, labour migration is the well-debated subject in context to its impact on the execution of Industrials companies. In the exhibit below, we highlight total organised and unorganised workforce in the construction sector and its elasticity to the sector's growth. We have heard management commentaries on labour availability at the sites and its impact on execution.

Construction companies have near-linear labor elasticity to growth: As per the exhibit below, labor elasticity and on-ground execution have a near-linear relationship. Our channel checks and managements' 4QFY20 results commentary also corroborate a similar trend with 20% labor availability translating to 20-25 % execution, while 55-60% labor availability is translating to 55-65% level of normal construction efficiency and so on. Execution efficiency is slightly higher on account of lesser site hindrances and lower man-hours spent on managing site traffic. Due to COVID-19 related lockdown and restriction on traffic movement, the site availability is better, and companies can execute round the clock. There is no restriction on movement of heavy vehicles and goods at the site. Hence, we believe faster the labor levels normalizes for companies, better the chances of execution nearing pre-COVID-19 levels. We see Larsen, KNR, DBL, PNC, KEC and HG Infra better-placed for recovery as they have been able to mobilize labor to near-normal pre-COVID-19 levels.

Source : Equity Bulls

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