Most infrastructure players (10 companies chosen for this analysis)
witnessed decent yoy growth (average 17.3%) on the top-line front in 2Q FY 2012.
We had mentioned in our 1Q FY 2012 note that sluggish performance on the
execution front could be a worrying sign for C and EPC companies given the
headwinds faced by the sector, but 2Q FY 2012’s better-than-expected
performance on the top-line front has been heartening.
EBITDAM for the quarter broadly remained under pressure, owing to high commodity prices and
inflationary pressures. Consistent hike in repo rates by the RBI (Reserve Bank of India) accentuated the already high interest cost for companies in the sector.
On the earnings front, high interest cost (owing to a high interest rate regime and
increased debt levels) coupled with EBITDAM compression resulted in a decline in
the bottom line for most companies under our coverage.
Valuations continue to remain at abysmal levels; Lack of catalyst in sight +
Persistent headwinds = Subdued performance to continue: Stock prices of
infrastructure companies continued to take a beating on the bourses, bringing the
stocks to very attractive levels on the valuation screen, even on subdued earnings
estimates.
However, lack of positive news flow from companies perse and
persistent headwinds faced by the industry – such as high interest rates, policy
inaction, slower-than-anticipated revival in industrial capex – led to
underperformance of infrastructure stocks on the bourses. Therefore, given no
visible signs of reversal of trends, we continue with our view that the performance
of the sector will remain subdued.
We prefer to remain selective:
We believe that stock-specific approach would yield higher returns given the disparity among these companies and changing
dynamics affecting them positively/negatively. Hence, in the current uncertain
times, we remain positive on companies having a comfortable leverage
position (L&T and Sadbhav); strong order book position (L&T and IVRCL);
undemanding valuations (IVRCL); superior return ratios (L&T and Sadbhav);
and less dependence on capital markets for raising equity for funding projects
(L&T and Sadbhav).
Hence, we maintain L&T, IVRCL and Sadbhav as our top
picks in the C&EPC space and recommend IRB in the development space after its
recent fall, which has brought the stock to attractive levels.
Review By Aangel Broking
Shailesh Kanani
+91 22-39357800 Ext: 6829
shailesh.kanani@angelbroking.com
Nitin Arora
+91 22-39357800 Ext: 6842
nitin.arora@angelbroking.com
witnessed decent yoy growth (average 17.3%) on the top-line front in 2Q FY 2012.
We had mentioned in our 1Q FY 2012 note that sluggish performance on the
execution front could be a worrying sign for C and EPC companies given the
headwinds faced by the sector, but 2Q FY 2012’s better-than-expected
performance on the top-line front has been heartening.
EBITDAM for the quarter broadly remained under pressure, owing to high commodity prices and
inflationary pressures. Consistent hike in repo rates by the RBI (Reserve Bank of India) accentuated the already high interest cost for companies in the sector.
On the earnings front, high interest cost (owing to a high interest rate regime and
increased debt levels) coupled with EBITDAM compression resulted in a decline in
the bottom line for most companies under our coverage.
Valuations continue to remain at abysmal levels; Lack of catalyst in sight +
Persistent headwinds = Subdued performance to continue: Stock prices of
infrastructure companies continued to take a beating on the bourses, bringing the
stocks to very attractive levels on the valuation screen, even on subdued earnings
estimates.
However, lack of positive news flow from companies perse and
persistent headwinds faced by the industry – such as high interest rates, policy
inaction, slower-than-anticipated revival in industrial capex – led to
underperformance of infrastructure stocks on the bourses. Therefore, given no
visible signs of reversal of trends, we continue with our view that the performance
of the sector will remain subdued.
We prefer to remain selective:
We believe that stock-specific approach would yield higher returns given the disparity among these companies and changing
dynamics affecting them positively/negatively. Hence, in the current uncertain
times, we remain positive on companies having a comfortable leverage
position (L&T and Sadbhav); strong order book position (L&T and IVRCL);
undemanding valuations (IVRCL); superior return ratios (L&T and Sadbhav);
and less dependence on capital markets for raising equity for funding projects
(L&T and Sadbhav).
Hence, we maintain L&T, IVRCL and Sadbhav as our top
picks in the C&EPC space and recommend IRB in the development space after its
recent fall, which has brought the stock to attractive levels.
Review By Aangel Broking
Shailesh Kanani
+91 22-39357800 Ext: 6829
shailesh.kanani@angelbroking.com
Nitin Arora
+91 22-39357800 Ext: 6842
nitin.arora@angelbroking.com
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