Infra stocks fall up to 65% from 52-wk highs

Unitty Infra66.54 Jaiprakash Associates63.49 Reliance Infrastructure60.23 Maytas Infra59.47 HCC58.09 Gammon

56.02

 Steel, cement and bitumen constitute about 80 per cent of their input costs. According to analysts, the sharp rise in the prices of these commodiites increased the cost pressure on the infrastructure companies.  Steel prices have doubled in the last one year, while cement rates have increased 30-40 per cent. The cost of Bitumen, which is one of the by-products of crude oil, has also risen as oil is at a record $135 a barrel.  "Though costs are going up, the companies are not getting comparable higher orders from government agencies such as National Highways Authority of India (NHAI) and others. Most of the government projects were fixed contracts and not variable contracts," Rupa Shah, an analyst with Finquest Securities. The core sector companies are also hit on funding front.  "Infrastructure projects are highly capital sensitive. It is becoming increasing difficult for them to raise money through both equity and debt, thereby impacting their project execution plans,'' said an analyst with a leading stock brokerage in Mumbai.  In the last one year, interest rates have gone up more than 100 basis points in the country, making borrowing more expensive.  Secondly, the analyst said, all the stocks were over-owned by foreign institutional investors (FIIs) and mutual funds, which are looking to exit whenever they got the right opportunity, thus putting selling pressure on the stocks.  "Most of the infrastructure stocks had risen above the fair value and some of the ventured into sectors such as real estate and hospitality. The unlocking of that value is reflected in their prices. If Rs 100 was the stock price, 50 per cent was for core business and the remaining for allied business," Shah said.  Though construction companies such as HCC, Patel Engineering, Gammon India, IVRCL have forayed into real estate, high interest rates and escalating property prices have adversely impacted their sales curbing the cash inflows of real estate companies, analysts said.  According to estimates, the infrastructure sector requires $500 billion investment in the next five years.  Apart from government investment in core sector projects, a series of private investors such as IDFC, SBI, 3i, ICICI among others have announced infrastructure funds worth $10 billion so far.  "The growth story is intact if the companies take care of cost and margin pressures,'' said Shah.