Finance Minister Pranab Mukherjee’s announcement to earmark over 46 per cent of total plan allocation for infrastructure development is a strong signal for its creation, feel industry leaders.
While leading private companies in this space do not expect huge orders to fall in their bag overnight, they feel the announcements and incentives will give them big orders and business in the coming years.
“This is a welcome focus on infrastructure but parallel activities have to pick up so that projects can take off, like faster clearances and implementation to make things work,” said Y M Deosthalee, group chief financial officer (CFO) of Larsen & Toubro (L&T), India’s largest engineering company.
L&T is currently implementing construction projects worth Rs 58,000 crore, besides plans of power generation. The engineering major is also into power equipment manufacturing.
While a healthy order book position was not an issue in recent years for infrastructure companies, projects were getting delayed due to procedural issues.
This affected top line performance of many companies, he said.
Sanjay G Ubale, managing director and chief executive of Tata Realty and Infrastructure, agrees. “Governance issues at the state level have delayed or created uncertainty among us in the case of many projects, especially urban infrastructure. Announcements like construction of 20 km of road per day are strong signals to address such issues and make things happen as per plan,” he said.
As a sequel to such announcements, Tata Realty and Infrastructure is gearing up to bid for airports and more roads; its current road projects are worth over Rs 1,300 crore.
The Anil Dhirubhai Ambani (ADA) Group-promoted Reliance Infrastructure (R-Infra), now the country’s largest company in this segment, is also likely to be a major beneficiary from the budget announcements.
“Major growth drivers for R-Infra, which is expected to grow 20 per cent year on year, will be from transmission and road projects,” Lalit Jalan, chief executive officer (CEO) of R-Infra had said in a recent interview with Business Standard.
R-Infra is currently executing three transmission projects worth Rs 4,300 crore and has identified an opportunity of Rs 58,000 crore from the sector over the next three years. In the road sector, the company sees over Rs 16,000-crore of bidding opportunity from the Central sector, besides participating in projects worth over Rs 2,500 crore in states. It is currently 730 km of road projects, worth Rs 7,250 crore in the country, said company sources.
In the past decade, the National Highways Authority of India (NHAI) could manage to construct only about 10,000 km of national highways. Construction of 20 km of roads per day or 7,300 km per year is an ambitious target, but definitely manageable with government support, feels A Subba Rao, Group CFO, GMR Infrastructure.
“There will be challenges, but these announcements open up huge opportunities for all players in this sector,” he said. GMR Infrastructure already has Rs 4,200 crore of road projects in its bag and expects more in the near future. GMR Energy, its group company, plans to add 6,700 Mw of power generation capacity over the next five years to its existing 800 Mw.
“Though the finance minister has doubled allocation for the power sector, he has not specified where this money is going to be spent, whether in generation, transmission or in distribution,” said Subba Rao.
“Increased allocation means government wants to hasten projects. If opportunities are more, we can bid for more projects and win more. When market size increases, every player will benefit from it,” said Pervez Umrigar, managing director, Gammon Infrastructure. Gammon has a portfolio of 16 projects in roads, ports and clean energy. Of this, seven are under construction.
Balarami Reddy, group CFO, IVRCL, which right now has an order book of around Rs 22,000 crore, says they are not worried about a swelling order book position.
“Increased allocation will result in creating a big market and since players are limited, they can look forward to increased margins,” he said.
However, an increased allocation for road transport by over 13 per cent, from Rs 17,520 crore last year to Rs.19,894 crore for 2010-11, will not have any significant impact in the near future, feels Ankineedu Maganti, Director of Soma Enterprise, a road infrastructure developer.
“Most of the awarded projects now are from allocations done in the last financial year. Any new awards from allocations in this budget will be executed only in the next financial year,” he said.
