Moneycontrol
you are here: HomeNewsIndia
Last Updated : May 25, 2020 09:04 PM IST | Source: PTI

Govt thrust on infrastructure boost to help transmission tower companies: Ind-Ra

According to the ratings agency, the prolonged nationwide lockdown would impact the revenue growth of transmission tower suppliers in the near term, however, the companies that supply T&D equipment are expected to be more resilient than the traditional steel industry players.

PTI
Representative Image
Representative Image

Even as the global economic slowdown and COVID crisis have severely hit the steel industry, players engaged in supply of transmission and distribution (T&D) equipment are expected to be more resilient mainly on the back of government orders, says India Ratings (Ind-Ra).

According to the ratings agency, the prolonged nationwide lockdown would impact the revenue growth of transmission tower suppliers in the near term, however, the companies that supply T&D equipment are expected to be more resilient than the traditional steel industry players.

"Orders for customised transmission towers are obtained through tenders from government organisations with a 6-12 month supply period, which are backed by secured funding programmes. Even for export orders, the counterparties are government backed entities or projects," the agency said.

Close

Coronavirus India News LIVE Updates

Ind-Ra considers the government's thrust on infrastructure development to support the economy could result in a faster recovery for transmission tower companies than traditional steel companies.

"However, there would be a slowdown in order execution in the near term due to delays in construction activities and shortage of labour at construction sites amid the lockdown. As a result, revenues could decline more in FY21 than in FY20," it noted.

According to the agency, tower companies are also competitive in export markets, which is visible with the increasing share of export orders from countries in Africa, Latin America and Europe.

"Orders from economically weak countries are generally backed by funding from World Bank, thereby securing payments. Furthermore, companies have a diversified product portfolio, with products ranging from specialised structures for solar power and railways to different grades of fasteners, which also provides support to their top line," it added.

Ind-Ra further said that T&D suppliers generally hold an order book of 9-12 months in the domestic circuit, which extends to 15-18 months in export markets.

"Although the COVID outbreak has led to a slowdown in consumption and delays in order execution, there have been order inflows to these suppliers in April 2020 and the resumption of project sites across India would gradually revive the sector," it added.

The agency also opines that since the inventory is customised for every order, the cancellation of orders is a remote possibility while a delay of 1-2 months has been witnessed across Ind-Ra rated transmission tower companies.

Working capital cycle is, however, expected to stretch for sector companies, owing to the delays in order execution. Players on the supply side typically have a gross working capital cycle of more than 250 days, majorly contributed by high inventory levels.

"However, the levels are likely to stretch up to 300 days, on account of a delay in pick-up of orders by construction players and delays in the realisation of receivables as a portion of payment is linked to the completion of tower erection," it said.

While certain project sites across the country have partially resumed operations, an inevitable stretch in inventory is unavoidable, Ind-Ra noted.

Follow our full coverage of the coronavirus pandemic here.
First Published on May 25, 2020 08:55 pm
Sections