IVRCL sees net up on rising road spend

IVRCL Infrastructures & Projects, bidding to build a tunnel in the Himalayas on the world's second-highest road for cars and trucks, said full-year profit may rise 40 per cent as India increases spending on public works.

Net income would probably climb to Rs 200 crore ($49 million) in the year to March 31 from Rs 141 crore a year earlier, Chairman E Sudhir Reddy said in a September 12 phone interview from Hyderabad, where the company is based. Sales would rise by more than half to Rs 3,400 crore, he said.

IVRCL Infrastructures, Larsen & Toubro and other Indian construction companies are rushing to win orders as the government boosts spending on roads, utilities and ports. India estimates it needs to invest $475 billion in public works by 2012 to sustain economic growth that is the fastest for any major country, except China.

"The huge spending on various infrastructure projects is offering mammoth opportunities to construction companies," said Sanjay Sinha, who manages the equivalent of $3.6 billion in stocks, including IVRCL Infrastructures, at SBI Funds Management. "That's translating into strong order books and driving growth at these companies."

IVRCL Infrastructures's shares have risen 49 per cent in the past year, more than three times the pace of India's benchmark Bombay Sensitive Index, and lifted the company's market value to Rs 4,940 crore. The stock declined 1.9 per cent to Rs 373.4 at the 3:30 pm close on the Bombay Stock Exchange on Friday, after rising as much as 2.9 per cent on the same day.

The builder has tied up with Fomento de Construcciones & Contratas, Spain's third-biggest construction company, for the $350 million tunnel project on Rohtang Pass, said S Ramachandran, the company's deputy director for project development. The pass, at a height of 13,400 ft (4,111 meters), links the two valleys of Himachal Pradesh.

"We will continue to get more orders in the new spending plan of the government," said Reddy. "We expect replacement of old and aging infrastructure to offer a huge business opportunity."

IVRCL Infrastructures had an order backlog of about Rs 9,500 and would be bidding for another Rs 18,000 crore worth of contracts in the next 12 months, said Reddy.

The company's first-quarter profit almost doubled to Rs 37.96 crore on sales that rose 58 per cent to Rs 680 crore.

Accelerating profit growth of Indian builders has attracted overseas investments.

HSBC Global Investment Funds (Mauritius), a unit of HSBC Holdings, raised its stake in IVRCL Infrastructures to 5.2 per cent this month. Citigroup Global Markets Private has a 7.25 stake, Ramakrishna Rao, IVCRL's company secretary, said in an interview.

Blackstone Group Holdings LP, Citigroup and 3i Group have set up funds to invest in Indian infrastructure. Last month, Blackstone Group LP invested $150 million in Nagarjuna Construction Co.

Inadequate levels of infrastructure investment are estimated to be holding back India's economic growth by as much as 2 per cent a year, according to the government. Highways, which move almost 80 per cent of the goods in India, account for only about 2 per cent of the country's 3.32 million kms (2.1 million miles) of roads.

Indian ports take 10 times longer to unload cargo than in Hong Kong or Singapore and a 13 per cent power shortage during peak hours forces companies to have their own power plants.