EPC cos seeing uptick in orders from state governments: Feedback Infra

Feedback Infra is India's leading infrastructure services company. It works in transportation, energy, and real estate and social infrastructure. In these three verticals, it helps creates assets through advisory and transactions; architecture, design, and engineering; and project management.

Below is the verbatim transcript of the interview.

Anuj: We have seen for starters good numbers from cement and decent demand as well. Can we infer that some sort of capex revival, some sort of buildup in construction activity is taking place?

A: You are partly right. Since you have given me the opportunity, can I step back and discuss with you some of the macro figures that are coming out which have a bearing on your question. The first is that the 12th plan period has just ended on March 31. It started on April 1, 2012 and finished on March 31 2017. This was a five year period of the last plan, the 12th plan which was officially still existing.

So, in the 12th plan, if you see, the total investment in infrastructure was planned at Rs 56 lakh crore. The figures that are coming out now from the official system show that investment that has been made has been Rs 38 lakh crore against the target of Rs 56 lakh crore. That is a substantive shortfall. It is a 32 percent shortfall which has impacted the gross capital formation in the economy largely. As you know, gross capital formation has fallen from a high of 34 percent 10 years ago down to 27 percent now and a large portion has been this claw back in infrastructure investments.

So, the achievement in the 12th plan is only as I said 68 percent. Interestingly, if you break it between public sector and private sector, the public investments have not done too badly because as you know, the public systems carried on with their investments and with the NDA government from 2014 has really stepped up public investments. So, public expenditure infrastructure investments as per the 12th plan was supposed to be 52 percent of the plan which is Rs 29 lakh crore. It is now believed that it is 66 percent of the overall achievement. So, the public sector has put in 66 percent of Rs 38 lakh crore which is Rs 25 lakh crore.

I don’t want your viewers to get confused with all these numbers, so, the moot point is public expenditure in infrastructure was supposed to do Rs 29 lakh crore in the 12th plan, it has done Rs 25 lakh crore. It has not done too badly at all and has probably saved the day. However, private investment, what is popularly called PPP has crashed. Therefore, the other messages that the step up in the governments emphasis on public expenditure while having giving results and partly saved the day is insufficient to make up for the space lost by private investment not coming in and that has now become very serious.

Sonia: Can you help us with some numbers because we also understand from a lot of the anecdotal evidence that tendering activity has picked up in roads and power distribution because of the central government’s various schemes like the Deen Dayal Upadhyaya Scheme, etc. How are the numbers stacked up now versus what they were about say three to six months ago?

A: You are asking me to reel out statistics from my fingers, I am sorry I won’t be able to do that. I don’t have those numbers ready to shall I say share with you just now. However, the broad uptick is what is there across the sectors that I have mentioned.

Latha: Is the metro a new source of orders?

A: Yes it is. There are close to 15 metro projects that are under implementation or under planning and sanction and that is leading to a certain increased construction activity as well as orders in the capital goods sector for railway equipment and coaches.

Latha: One of the road blocks for infrastructure has been that infrastructure companies don’t have fresh money to put for fresh bids. Will Infrastructure Investment Trusts (InvITs) works and therefore will this cycle restart for the private infrastructure companies as well?

A: There is not one group called private infrastructure companies. There are actually two groups. There is group one which is largely the set of infrastructure EPC companies that participated very actively in the PPP program. For various reasons that you and your viewers are aware, their balance sheets have gone extremely stressed.

There is another set of mid-level construction companies, some of whose public issues you have seen recently, whose balance sheets are not stressed because they have never really gone into PPP space and have largely concentrated on the EPC space or the pure public expenditure contract space. Their balance sheets are not stressed.

So, as new orders come in from highways, from state road corporations, irrigation, set number two does not have a challenge in executing those orders. So, far as set number one is concerned, yes, things like InvITs, resolving the twin balance sheet problem, releasing amount stuck in arbitration, resetting of bank loans, this entire clutch of financial restructuring of their balance sheets including InvITs should help in giving the requisite liquidity for them to once again come back with a certain degree of energy.