| Infrastructure may replace IT as new growth driver |
| Ranju Sarkar / New Delhi March 9, 2010, 0:40 IST |
What’s common between GMR Infrastructure, Mundra Port, Reliance Infrastructure, JP Associates and GVK Power and Infrastructure? All are infrastructure companies, with growth in sales and profits at an average of 30 per cent or more in the past two years.
Many believe infrastructure could be the next driver of growth, and companies in this sector could grow the same way as software companies like Infosys and Wipro grew for much of the past decade.
Issac George, CFO, GVK Power & Infrastructure, said infrastructure would continue to post higher growth as the base is low. ‘‘We are just scratching the surface; hence, the growth would be high. The sector is about to take off. For a couple of years, the growth will be very high for all serious players,’’ he said. Many (see table) have shown such growth for two years.
Nikhil Gandhi, who developed a greenfield (entirely new) port (Pipavav), said after reforms, “what we have achieved in infrastructure as a country vis-a-vis what is required is merely 10 per cent”. ‘‘There’s room for 90 per cent, which will be achieved in 20 years. Things will speed up from here,’’ said Gandhi, CEO, Sea King Infrastructure.
He feels progress in the past 20 years was slow as we were stuck with the policy framework and financing issues, and not many promoters were confident of investing in infrastructure, as they perceived it to be a long-term game. ‘‘In reality, it is not so bad, as customers are willing to pay for better service,’’ he said.
In the early 1990s, it used to take 17 days for a ship to turn around from pre-berthing. ‘‘In Pipavav, we turn around ships in one-and-half days, and the customer who saved several dollars with a faster turnaround was willing to share an extra dollar,’’ Gandhi said. Similarly, transporters don’t mind paying toll if they can reach destinations faster.
The private sector is increasingly playing a major role. The 11th Five Year Plan (2007-12) had estimated an investment of $500 billion in infrastructure, with government bringing 70 per cent. Jayesh Desai, MD, Enam Holdings, said the private sector is already playing a bigger role, and the ratio was more like 50:50 today.
The National Highways Authority of India (NHAI) is widening 54,000 km of highways, of which 12,000 km is done. Of the remaining 36,000 km, 90 per cent would be done by private companies, while 10 per cent of the work could be done by NHAI. Today, 83 per cent of power-generating capacity is with public sector units. Going forward, the private sector will add over 50 per cent of new capacities.
‘‘All big business groups (Tatas, Jindals, Essar, Adanis), with the exception of Birlas, are looking at infrastructure. If you follow them, you can’t go wrong... If infrastructure doesn’t work, India won’t grow. And for infrastructure to happen, private companies have to come to the party, and generate returns for investors,’’ said Desai.
Vinayak Chatterjee, CEO, Feedback Ventures, said the opportunity in infrastructure is not just in new asset creation. It’s also about existing stock, 20-30 times the assets being created. ‘‘Opportunities exist across the chain; from rehabilitation and renovation to operations and maintenance. The opportunity is humongous,’’ he said.
Software had a dream run. It was helped by a huge dollar arbitrage, as the rupee kept depreciating against the dollar, a huge cost arbitrage and tax holidays. Conditions are different for infrastructure. It’s a 100 per cent domestic business, barring a few companies executing orders abroad. Earnings are in local currency, so there’s foreign exchange arbitrage. And, competition is intense.
Yet, experts like Gandhi believe infrastructure could have a bigger impact than software, as it would create far more jobs, top line and bottom line growth for companies. Andrew Holland, CEO-institutional equities, Ambit Capital, said the infrastructure story could be as compelling as the software one, if companies can get their execution right.
| INFRASTRUCTURE: NEXT MONEY BUILDER? | |||||||||
| Co. Name | Sales CAGR (%) | Net profits CAGR (%) | Market cap (Rs crore) | ||||||
| 2 years | 3 years | 5 years | 2 years | 3 years | 5 years | 31-Mar-09 | 4-Mar-10 | % Change | |
| NTPC | 13.42 | 16.23 | 17.00 | 9.30 | 12.11 | 9.29 | 1,48,583.91 | 1,70,640.62 | 14.84 |
| Power Grid Corp | 35.38 | 27.89 | NA | 17.27 | 18.78 | NA | 40,257.55 | 45,792.18 | 13.75 |
| GMR Infra | 118.36 | 39.73 | 4.91 | 482.35 | 40.07 | 11.19 | 17,401.81 | 21,307.59 | 22.44 |
| Tata Power | 24.13 | 16.81 | 12.01 | 15.04 | 14.74 | 12.62 | 18,152.15 | 31,626.91 | 74.23 |
| Neyveli Lignite | 26.25 | 15.14 | 3.66 | 20.36 | 5.34 | -6.41 | 14,050.82 | 27,078.24 | 92.72 |
| Mundra Port | 39.72 | 43.45 | - | 56.84 | 91.24 | - | 12,949.98 | 28,622.58 | 121.02 |
| Reliance Infra | 31.25 | 35.48 | 23.90 | 19.21 | 20.53 | 25.41 | 11,668.55 | 23,212.58 | 98.93 |
| JP Associates | 28.83 | 22.18 | 18.91 | 47.04 | 11.91 | 39.51 | 11,925.38 | 30,594.24 | 156.55 |
| KSK Energy Ven | 153.8 | 154.36 | NA | 220.48 | 133.5 | NA | 7,115.37 | 6,694.30 | -5.92 |
| BF Utilities | 23.51 | 19.91 | 1.23 | NA | 33.64 | NA | 1,206.25 | 4,249.55 | 252.29 |
| Torrent Power | 24.6 | 19.05 | NA | 68.58 | 50.56 | NA | 3,498.49 | ||
