Infra Q1 revenue growth may remain subdued at 13.6%: Angel

Angel Broking has come with its June quarterly earning estimates for infrastructure sector. According to the research firm, average revenue growth is expected to remain subdued at 13.6% yoy on the back of slowdown in execution.

For 1QFY2013, we expect average revenue growth for our coverage universe to remain subdued at 13.6% yoy on the back of slowdown in execution. The slowdown in execution pace has been due to: 1) a challenging macro environment; 2) policy paralysis; 3) stretched working capital; and 4) delays in payments from clients. During 1QFY2013, the sector did not witness any respite from the several headwinds (such as high interest and inflationary cost pressures and slowdown in order inflow) existing around it. Thus, dull revenue performance along with pressure on EBITDAM and high interest cost will result in muted performance on the earnings front. Against this backdrop, we expect a decline in the earnings of companies under our coverage, with L&T
and Sadbhav Engineering (SEL) the only exceptions. Order inflow remains muted
Order inflow in the last couple of quarters has been disappointing (excluding the road sector) for companies under our coverage. For 4QFY2012, NCC and Simplex showed positive growth; however, NCC's growth can be attributed to low base in 4QFY2011. Most players witnessed a decline in order inflow for the quarter owing to policy paralysis at the government's end, delays arising due to land acquisition and environment clearance issues. Outlook and valuation
Persistent headwinds faced by the industry - high interest rates, policy inaction and slower-than-anticipated revival in industrial capex – continue to haunt the sector's performance. Further, a stretched balance sheet and working capital on the back of investment in subsidiaries and delays in payment from clients have aggravated the situation. However, infrastructure stocks have seen some positive movement during the past few weeks
as the Prime Minister has decided to give a push to infrastructure projects and emphasized on boosting investment in the sector. Battling charges of policy paralysis, the Prime Minister has set an investment target of at least Rs 2lakh crores for core sector projects in FY2013. We believe that although interest rate cuts and increasing investment in the sector remain key triggers for infrastructure stocks, removal of bottlenecks such as delays in environmental clearance and land-acquisition issues is also of prime importance for the execution pace to pick up.

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