Amid signs of a revival in the industrial cycle, the capex plans of large companies such as Reliance Industries are creating traction in the infra space. The company’s petcoke gasification project will see investments of $4 billion over the next three years. The company is also setting up a petrochemical cracker for an investment of $8 billion. The project management firms for these have been finalised and ground work has started in Jamnagar. Analysts say the project site could require at least 1,000 cranes and companies such as Sanghvi Movers could finally see business improving two quarters down the line when work commences.
Nilesh Shetty of Quantum Asset Management believes the sector is at the start of a revival. The total tendering value for September stood at Rs 30,100 crore, up 42 per cent annually. Similarly, tendering in August was up 61 per cent, compared to the muted preceding months. According to Dhananjay Sinha of Emkay, “While the broader investment cycle will take time to turn, there’s some improvement in the infrastructure space, as evident from L&T’s Q2 numbers. The state-owned enterprises are getting back to ordering and announcing projects.”
So, what’s actually happening on the ground? Experts are of the opinion there is definitely more activity on the ground now compared to a year ago. Public sector enterprises have started spending on projects and are also ordering equipment. According to Emkay Global, sectorally, roadways, irrigation, water supply and storage and distribution witnessed strong growth. Orders from the Indian Railways saw a sharp jump to Rs 3,460 crore (highest since March 2011).
L&T’s order book’s break-up gives a similar trend. The company has won a Rs 700-crore hydro power project in Arunachal Pradesh, a Rs 650-crore project for urban infrastructure (water and roadways), a Rs 550-crore project from the railways and another Rs 520-crore project to construct a water plant in Rajasthan.
However, roadways continued to disappoint, with order finalisations of just Rs 920 crore in the month. Hemant Kanoria, chairman of Srei Infrastructure, says, “It’s a little too early to call it a revival but movement has started in the sector. While new projects have not started yet, work has started internally and the government has now decided to award engineering, procurement and construction projects as the appetite for BOT (build-own-operate) projects was just not there.” The change in the government’s policy has happened just weeks ago. It will result in contractors getting projects and they will not be required to sink their own capital in projects where revenue visibility is not there. Till recently, all road projects were on BOT basis, where the contractor had to invest and earn revenues through tolling. The change in policy will put money in the hands of contractors.
Another segment that has the market excited is the ordering from PowerGrid. The company has a budget of Rs 20,000 crore each year. According to Kunal Sheth of Prabhudas Lilladher, PowerGrid’s ordering for the first half of FY13 stood at Rs 9,270 crore (up 135 per cent year-on-year). “Historically, the ordering has been strongest in the last quarter of the year. However, it is getting more spread out now.” Transmission orders comprise 32 per cent of total orders placed in the first half by PowerGrid. The segment is showing first signs of consolidation, with old players such as KEC and Kalpatru gaining significant market share in H1 FY13.
New project announcements by the private sector are at a 33-quarter low. The appetite for private investments is at 2004 levels, explain analysts. There are green shoots in the sector no doubt, but a broad-based recovery will happen only when the rate cycle turns. G M Rao, chairman of the GMR Group, says most of his infrastructure projects are on hold due to high interest rates and the policy paralysis.