Expect infra sector revenue growth at 9.9% in Q4: Angel

In the past 12 months, the infrastructure sector has been plagued by severe headwinds - inflationary pressures, depleting order books, high interest rates and policy paralysis, resulting in execution slowdown and shrinking bottom line of most infrastructure companies. Many projects could not take off due to delays in approval and decision making. Moreover, new project launches have dropped by ~32% in 2011-12, owing to lack of clearances and no clarity on policy reforms (in particular, the power sector) for various sectors. Further, with no immediate signs of respite in sight for infrastructure companies, we believe the pain is expected to continue for some more time and expect things to improve only in 2HFY2013. Notwithstanding this, it should be noted that there is a pertinent need of infrastructure in the country and the economy would get derailed from its high-growth trajectory if these needs are not met, which is acknowledged by one and all. Hence, we believe the long-term growth story for the sector remains intact.

In this report, we introduce our FY2014 numbers, which factor in 8-30% earnings growth by most companies in our coverage during the year. Our estimates are primarily based on the following assumptions: 1) revival in order inflow, driven by government and private outlay; 2) respite in interest rates owing to lower inflation; and 3) relaxation on the working capital front.

We remain positive on companies having
1) Comfortable leverage position (L&T and SEL);
2) Strong order book position (L&T, IRB and SEL);
3) Superior return ratios (L&T, IRB and SEL); and
4) Lower dependence on capital markets for raising equity for funding projects (L&T and SEL).

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