Road sector witnessing the slowdown punch

UR Associates has come out with its report on infra sector.

Road sector was given more impetus in the Union Budget 2012-13 and it was/is seen as the only sector providing great opportunity to the infrastructure companies basically highway developers. The road project award target was increased to 8,800 km in the Budget and then to 9,500 km recently by the Prime Minister for FY13. Much to its promise, the road sector has been offering steady orders in the last few years. However, the signs of economic slowdown and tight liquidity scenario have started to reflect in the road sector projects as well. NHAI, out of its targeted road projects award of 1,785 kms for the Q1 of FY13 has only managed to award ~200 kms of project. The situation is of further concern because government has found fewer bidders evincing interest and it is in sharp contrast over the average of 20 bidders during 2011-12. Expect double digit margin in FY13: Thermax
MS Unnikrishnan, Managing Director of Thermax, in an interview to CNBC-TV18, said that at the end of the year, the company should be able to have a double digit profitability margin based on the orders and the way the market is moving. He said that the order book at the end of FY12 was at Rs 42 bn for the main company and ~Rs 48 bn for the group at the beginning of the current year. Commenting on the rupee depreciation, he mentioned that Thermax is a net exporter and hence any rupee depreciation should be beneficial to the organization in the medium to long term. Concrete order pipeline makes us bullish: VA Tech Wabag
Government orders constitute 70-80% of total order book of VA Tech Wabag, said Rajiv Mittal, MD, VA Tech Wabag. As per the MD, water sector accounts for 10-12% market share for the company which is a very fragmented sector and the company only concentrates on orders where financing is absolutely certain. In private sector, the company only looks for orders in the range of Rs 800-1,000 mn plus in oil and gas, steel and power sectors. The company expects private sector to contribute 25-30% to the order book this year, and have already booked some orders. Mr. Rajiv said that as VA Tech is a technology company, it has an edge over local competitors in technology. Generally, the company do not compromise on margins and looks for profitable growth which means the bottom line needs to grow better than the top line.
_PAGEBREAK_ Fitch affirms IRB’s Surat Dahisar Tollway's project bank loans at 'Fitch BBB(ind)'
Fitch Ratings has affirmed IRB Infrastructure’s Surat Dahisar Tollway Project (IRBSD) Rs 13.01 bn senior project bank loan at 'Fitch BBB(ind)'. The Outlook is Negative. IRBSD is an SPV, incorporated to implement a lane expansion project on a design, build, finance, operate and transfer basis under a 12-year concession from the National Highways Authority of India. The affirmation reflects IRBSD's significant engineering, procurement and construction (EPC) cost savings, continued evidence of sponsor support, and the subsequent reduction in the senior debt level. The project's debt as on 31 March 2012 stood at Rs 13.01 bn, down from the drawn down amount of Rs 17.44 bn. The Negative Outlook reflects residual completion and traffic ramp-up risks. The rating also reflects the lower-than-expected traffic ramp-up experience. GVK Power eyes 70% of Hancock debt from external agencies
Infrastructure major GVK Power is likely to depend on external credit agencies (ECAs) to fund at least 70% of the debt for its recently acquired Hancock project in Australia. The entire outlay for development of the five Hancock projects (three coal mines, a rail and a port) is estimated at about $10 bn. GVK is likely to fund the project with about $7.5-8.0 bn in debt while the balance would be equity. The financial project is likely to be completed in the first half of 2013 calendar year. ECA funding generally comes with a stipulation that development contracts for which the debt is availed are awarded to companies from countries where the credit agencies come. Even in the mining part of the project covering all the three coal mines, GVK is evaluating the option of depending on ECAs for most of the funding instead of knocking the doors of commercial banks. With 70% of the debt coming from ECAs, GVK would have to raise $1.0-1.5 bn from commercial banks.  Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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