Construction & infra revenue to grow by 16% in Q1: Emkay

Revenue for Construction & Infra companies within Emkay universe is expected to grow 16% yoy to Rs 97bn. IL&FS transportation (ILFT), GMR infra & Ashoka Buildcon (ABL) will lead the growth with 48%, 24% and 20% YoY respectively. Remaining universe to depict flattish growth.

Core infrastructure revenues are set to grow 12%yoy for the Emkay universe led by ILFT & ABL witnessing 59% & 20% growth respectively due to low order backlog visibility & execution issues respectively.

Aggregate EBITDA for coverage universe is expected to grow 12% at Rs 23.2bn, Overall EBITDA margins are expected to decline 80bps to 23.8%. Momentum in IRB infra is expected to slow down temporarily before the ramp up at Ahmedabad Vadodara which will be visible from Q2FY13E.

Higher cost of debt and increased parent’s leverage due to higher equity investments in several SPV’s is expected to pinch the infrastructure developer. Interest expense for the infrastructure universe will grow 23% yoy with major contribution coming from ABL & ILFT with 82% & 53% yoy growth respectively.

Although rains were delayed by a month which will improve the number of working days for construction industry, however, we don’t foresee significant improvement in execution. With burgeoning interest cost the construction industry’s overall profitability is expected to languish. Aggregate APAT for coverage universe is expected to decline 21% yoy to Rs 2.6bn, mix set of numbers are expected. GMR to report 8th consecutive loss in quarter, Although tariff implementation has commenced form May 15, 2012 the operating performance to gain momentum from Q2FY13E.

We prefer players with strong order-book visibility, strong cash generating ability coupled with lower risk of delay in commencement of toll collection. We maintain our positive stance and retain IRB Infrastructure & Ashoka Buildcon as our top pick in the sector.