Roads ahead sluggish, risky for BOT projects

Construction space has witnessed profit booking after the last week's rally. Construction companies have seen a tough quarter with margins contracting, cash flows being tough and interest costs also shooting up. Quite a lot of concerns are hovering over the construction space currently. The companies feel it's very risky to undertake build-operate-transfer or BOT projects as of now.

 

Here is a verbatim transcript of Tejal Badal's comments on CNBC-TV18. Also watch the accompanying video. 

 

Meanwhile, HCC management believes that most Government projects are with escalation clauses. Interest cost is going to be a concern for some time. The company hopes to recover the input costs borne during the last few quarters in next nine months. However, HCC doesn't see slump in next two quarters.

 

HCC's order flows are normal and it hopes for the Government measures on the liquidity front, adding that it will be focusing on BOT  projects with right kind of mix but have slowed down on real estate projects. Current order book is at Rs 12,800 crore, but believes that a stimulus package like China should help improve scenario in India to some extent.

 

When contacted, NCC management said that with measures by RBI and essential commodity prices like steel, cement coming down, the scenario could improve by March, 2009. However financial closure of projects may take longer and may be at a higher rate. The company sees sluggishness in road projects, while the current order book is at Rs 12500 crore.

 

IVRCL management said the Indian construction sector still hasn't seen the pain. It would take probably one more year for the impact to be felt. It is risky to undertake BOT projects now. Most projects are with price escalation clauses so the company is not impacted by the surge in commodity price to a large extent. IVRCL's current order book is at Rs 15,000 crore.

 

 

KNR Construction said that it has felt the pain as earlier contracts had lesser percentage of price escalations. The company has now factored in changes for new projects and is focusing more on EPC business. KNR experienced a slump in order flow in the past nine months, but expects things to change hereon. Despite companies being in a state of denial about slowdown, even companies showing strong H1FY09 revenue growth have not made any upward changes to FY09 earnings.