TWO-LANING OF NHS ACROSS THE COUNTRY

There is no proposal of two-laning of all single-lane NHs across the country on BOT basis, which are not covered under approved phases of NHDP. However, NHDP-Phase-IV, involving upgradation of NHs to two-lane standards with paved shoulders primarily on BOT basis, is yet to be approved by the Government.

The Eleventh Five Year Plan (2007-12) endorsed by the National Development Council (NDC) during its meeting held on 19.12.2007 recommended that the targets for stretches other than NHDP have to be prioritised according to their importance to the national economy so that the available resources are not spread thinly among competing projects. The major targets for non-NHDP components include:

i. Accelerated efforts to bring NHs network to a minimum of two-lane standard within the next ten years and four-laning small segments of non-NHDP stretches.

ii. Removing existing deficiencies, like inadequate capacity, insufficient pavement thickness, etc. in the road network by strengthening the National Highway network/improving riding quality.

The condition of the National Highways (NHs) is monitored on regular basis. Further, the development and maintenance of NHs is a continuous process to keep them in traffic worthy conditions and are taken up as per the availability of funds, traffic intensity and inter-se priority.

This information was given by the Minister of State for Shipping, Road Transport and Highways, Shri K.H. Muniyappa in a written reply in the Rajya Sabha today.

Source: pib.nic.in

Concrete gains

Mega investments in infrastructure and the recent market correction offers an exciting investment opportunity in construction stocks.

The robust GDP growth rate experienced by the country in the last few years is indeed commendable and was aided by investment in infrastructure. To sustain growth rates, it is imperative for India to make higher investments towards setting up world-class infrastructure. As per the planning commission estimates, investments in infrastructure is set to go up by a whopping 130 per cent to $520 billion for the eleventh Five Year Plan (FY 2008-12) as against the $226 billion made during the tenth plan (FY 2003-2007).

Construction companies will be among the first beneficiaries of these investments and will deliver good and sustainable long-term growth.

Since the investment plans for each of the sub-segments in infrastructure space varies, based on priorities, there is reason to believe that not all the segments or companies will grow at all times. For instance, regional players or less diversified ones may experience volatility in revenues. For companies, faster project execution capabilities and access to key construction machinery (equipment) are equally critical, which in turn will determine the growth rates and profitability margins, respectively for any company. For example some companies are looking at purchasing their own equipment to tackle rising hiring costs and protect margins.

Thankfully, despite issues, the huge opportunity dwarfs concerns. Says Satish Ramanathan, head equities, Sundaram BNP Paribas, “While the future is promising, earnings could be volatile. Choose companies on valuations, order book and services portfolio.”

Last, but not the least, the recent correction in stock markets provides an opportunity to buy good companies in the space at reasonable valuations. Among many stocks, we have picked 10 stocks—four large caps (Read: Bigger the better) and six mid-caps, which are likely to emerge as key beneficiaries of the ongoing investments in the infrastructure sector. Bigger companies are well-established, diversified and less risky. Investors with low risk appetite can consider them. The smaller ones are efficiently managed and are on the growth path with good earnings visibility. Notably, they may also grow faster, given the size of the opportunity and their individual strengths. But, small size also means that there is an element of risk and hence, investors need to review them on a quarterly basis and look at the flow of new business and financial performance.

ON THE HIGHWAY

Era Infra Engineering

Era Infra Engineering, which was earlier into the construction of industrial and commercial space, has diversified into verticals such as railways, roads and highways, airport, urban infrastructure and oil and gas. The company now commands a sizeable order book of Rs 4,100 crore, which is thrice its FY08 estimated revenue.

The company is also developing commercial and residential buildings on its 500 acre land in and around Delhi and Jaipur. Though some of these projects will only be completed by FY10 and FY11, four of them will be completed in FY09 thus providing significant revenue growth.

Besides, the company is also investing about Rs 200 crore in growing the building structure segment. Building structures, which includes the construction of metal structures used at public and private places, is a high growth and high margin business accounting for 21-22 per cent operating margins. The company is currently having total capacity of 45,000 tonne per year of structure, which will be expanded to 185,000 tonne per annum by September 2008. The contribution from new capacity will reflect partially in FY09 and fully by FY10. The expanded capacity at current realisation of Rs 58,000 per tonne can get additional revenue of Rs 750-850 crore per year, assuming 70-80 per cent capacity utilisation.

Additionally, the company is also investing in plant and equipment to scale up its in-house capabilities; currently, 75 per cent of its equipment requirement is met in-house (gross assets at Rs 500 crore). The company will further spend about Rs 200-250 crore over the next year towards purchase of equipment. This will help cut costs and generate additional revenues by way of renting out to third parties.

That apart, Era also plans to increase its Ready Mix Concrete (RMC) capacity 10-fold by installing about 50 new RMC plants over the next 2-3 years, at an estimated cost of Rs 350-400 crore. About 90 per cent of the new RMC production will be sold to third parties. Expect this business to contribute a large chunk to revenues.

Given its in-house equipment and RMC facilities, Era enjoys healthy operating margins of about 20 per cent and RoNW (return on net-worth) of 30 per cent, among the best in the industry. The company’s core business is growing at robust pace, which along with the strong order book and investments will drive growth.

RISING HIGH

Sadbhav Engineering

Sadbhav Engineering, with a focus on the road segment, would be a key beneficiary of the ongoing investments in this segment. Of the company’s current order book of Rs 2,300 crore, road projects account for over 70 per cent, including 32 per cent from BOT projects. Enhanced focus on BOT projects has seen the company win four BOT road projects in consortium with other players over the last six months; Sadhbav’s equity contribution is pegged at Rs 92 crore. Going forward, the BOT projects are expected to contribute significantly to revenues as the company has achieved financial closure of Aurangabad-Jalna and Nagpur-Shinoi project during Q3FY08. It expects the Mumbai-Nasik expressway project to achieve closure by December 2008.

From Q4FY08 onwards, its projects in the relatively higher margin mining segment (9 per cent net margin) would be a positive trigger, and will help in improving its bottom line. The revenue will accrue from its ongoing project with GHCL and the recent Rs 245.24 crore order from the Northern Coalfields. Sadbhav Engineering currently has 15 per cent of its current order book from mining. However, the mix is expected to go up as domestic companies are allotted more mines and thus, reflects huge potential for excavation work.

Considering its current order book, which is over three times its FY08 estimated revenue, the company is expected to maintain revenue growth of over 50 per cent for the next two years. Also, with the increasing share of mining and the captive resources, the operating margins are expected to improve from 11.9 per cent in the FY07 to 12.5 per cent in FY08 and 13 per cent in FY09. The expansion in margins will also lead to the higher earnings growth. While these positives are partly reflecting in the higher valuations, the stock has good potential.

Pratibha Industries

Pratibha Industries is emerging from being a small player handling projects with an average size of Rs 10-20 crore to a bigger player. The most recent order bagged by the company is as big as Rs 300 crore. The company, which was primarily into the water projects (about 70 per cent), has diversified into other construction segments such as industrial projects, roads, urban infrastructure, airports, railways, pipeline and tunneling. The company has a strong focus and expertise in handling water-related projects, accounting for 60 per cent of its total order book.

Further, to grab the growing opportunities in the water segment, micro tunneling and piping projects, the company has formed a JV with Ostu Stettin of Austria, the world’s third largest tunneling company. It will help getting complex projects involving tunneling for laying pipes in high density urban areas for underground tunneling.

Besides, the company is also integrating backwards into manufacturing of SAW spiral pipes, with a capacity of 90,000 tonnes per annum. These pipes will be used for captive consumption as well as commercial sales to other companies for use in water transmission, oil and gas, sewerage and other industrial usage.

Within construction, the company has also diversified into some of the high potential segments, having undertaken (either independently or jointly) construction of complexes, buildings, airports and roads.

A strong order book of almost 4.5 times its FY08 estimated revenue and better outlook for urban infrastructure and water-related projects, indicates a robust future for the company. Besides, growth would be driven by the increasing revenue share of pipe manufacturing business in FY09. According to estimates, the SAW pipe segment alone can add about Rs 240 crore of revenue in FY09 at 60 per cent capacity. Overall, the stock is attractive from a long-term perspective.

Ahluwalia Contracts

Ahluwalia Contracts, primarily into construction of residential and commercial projects, is now diversifying into the urban infrastructure space. Although urban infrastructure still contributes just 3 per cent of its revenues, the company plans to increase its share to 20-25 per cent over the next three years.

On these lines, the company will bid for select BOT projects, especially multi-level car parking and bus terminus. The company has already been awarded a BOT project in Rajasthan for constructing a bus terminus, which also includes a commercial complex, wherein the targeted IRR (internal rate of return) is a sound 20 per cent. There is huge opportunity in the multi-level car parking segment, as over 30 projects are likely to be awarded in Delhi alone.

The company being an established player in the National Capital Region (NCR) is expected to gain from the residential and commercial projects consequent to the 2010 Commonwealth Games, to be held in Delhi and also the all round infrastructural development in the NCR region. It has already won some of these projects, including the recently bagged Rs 688 crore Commonwealth Games 2010 village residential project.

Considering its growth plans and projects in hand, the company is incurring a capital expenditure of around Rs 55 crore in FY08 and Rs 110 crore in FY09. This will also include the expansion of its RMC capacity from 210 cubic meter per hour currently to 300 cubic meter per hour in FY09. The RMC division, which contributed over 18 per cent to revenues in FY07 (Rs 81.40 crore), should see its revenues grow at a healthy pace over the next two years.

The healthy order book (3.24 times of FY08 estimated revenues) provides earnings visibility over next two years. Over the long-term, growth will be aided by the company’s diversification.

Tantia Construction

North East and eastern India are considered to be underdeveloped. Investments are required towards construction of roads, ports, power and other infrastructure facilities. The Centre has already indicated that it intends to spend Rs 50,000 crore towards construction of roads and another Rs 2,000 crore for rail connectivity in the North-East over the next five years.

Tantia, which generates about 96 per cent of its revenue from the eastern and north eastern region by undertaking roads and railway projects, will be the key beneficiary.

To further capitalise on this, the company is foraying into other segments of infrastructure and BOT projects. Its relatively smaller size and limited presence is reflecting in the lower valuation it enjoys vis-à-vis its peers, which should hopefully correct as the market gains confidence in the company. What is currently playing in its favour are opportunities and relatively less competition in the North East.

Considering the industry outlook and healthy order book to be executed over the next 30 months, the company may maintain revenue growth of over 50 per cent in the next two years.

Gayatri Projects

In a recent development, Gayatri Projects signed an MoU with DLF to jointly undertake construction of road projects on BOT basis. The new entity will leverage the capabilities of the two companies and, is expected to develop projects worth over Rs 1,000 crore every year. The tie-up with DLF is also expected to provide Gayatri Projects an entry into the real estate business; it would be developing properties along with DLF. Gayatri Projects is a focused player in the construction of roads and irrigation segment, which account for about 98 per cent of its order book. The company is now venturing into urban infrastructure and the water treatment segments, which will not only help diversify revenue streams but also improve margins; these are already high at over 15 per cent compared with the industry average. That’s because, the company owns nearly 100 per cent of the project related equipments.

Apart from constructing infrastructure, like other companies, the company is looking at capitalising on the growing opportunities in the BOT segment. It currently has five BOT road projects, which have already achieved financial closure. Of this, revenue from three projects is expected to start flowing from March 2010. Analysts value the BOT projects at Rs 120-170 per share, based on the discounted cash flow method. The BOT projects will provide a sustainable or steady cash flow in the long run and help in improving its profitability on the back of higher margins.

Given the high opportunities in the infrastructure sector and diversification into other geographies and segments, the cash contract (non-BOT) business will continue to grow at a robust rate, over the longer term. For the next two years though, earnings will grow on a sustainable basis, backed by the strong order book of Rs 3,400 crore (almost 4.5 times its FY08 estimated revenue) executable over the next 30 months. At current price levels, the stock is trading at a relatively lower valuation, compared with its peers and, is capable of delivering good returns.

Bigger the better

Bigger companies score heavily on size, services portfolio, strong execution capabilities and have a proven track record, all of which provide great comfort and hence justify premium valuations.

IVRCL Infrastructures & Projects

The increasing allocation towards water-related projects augurs well for IVRCL, which generates 57 per cent of its revenue from it. Besides, IVRCL is also present in other growing segments such as roads, building & structures and power. Its order book of Rs 11,000 crore provides strong revenue visibility. Analyst value the company at Rs 550-650 per share on a sum-of-parts valuation of its different businesses and investments in subsidiaries like Hindustan Dorr Oliver and IVR Prime.

Hindustan Construction Company

A dominant player in transport segment, Hindustan Construction is now focusing more on profitable segments such as water and power. Of its order book of Rs 9,050 crore, power projects accounts for 44 per cent and water projects 22 per cent. This diversification will not only help it grow faster but also improve margins. Long-term growth will be aided by improving revenue mix, strong order book and its real estate business (12,500 acre Lavasa project, valued at Rs 60-100 per share. On a sum-of-parts basis, analysts value its share between Rs 210-260.

Nagarjuna Construction

Nagarjuna Construction has been growing at 58 per cent annually over the last four years and is expected to grow at about 40-45 per cent during FY08-10. The growth will be driven by robust order book coupled with expansion of volumes and margins, led by diversification into segments like metal, oil & gas and real estate development. Nagarjuna is investing in BOT projects; has five road projects, two hydro power and two sea port projects. Its businesses are valued at Rs 315-395 per share.

Punj Lloyd

After acquiring Singapore-based Sembawang in FY07, Punj Lloyd tapped the growing global energy market with extended services portfolio. In the domestic market, it has forayed into onshore drilling, real estate and ship building business with 25.1 per cent stake in Pipavav Shipyard. Its consolidated order book of Rs 18,500 crore, provides reasonable comfort. Going forward, net profit is expected to grow faster on the back of turnaround of Sembawang; consolidated operating margins are expected to improve to 10 per cent by FY09 (8 per cent in FY07).

Source: Jitendra Kumar Gupta : business-standard.com

Navayuga Engg bags Rs 710cr NHAI project

Hyderabad-based multi-disciplinary engineering and construction player, Navayuga Engineering Company, has bagged a Rs 710 crore project from the National Highway Authority of India (NHAI).

The contract envisages designing, construction, financing and maintenance of an access-controlled highway project between the Bangalore and Nelamangala section on NH-4 on a build-operate-transfer (BOT) basis in Karnataka.

Debt syndication of Rs 540 crore has been done by
Bhubaneswar-based SRB Consultancy Private Limited from a consortium of banks.

The six-lane highway project, total length of which is 19.5 kilometres with elevated highway for 4.5 kilometres, terminates at Nelamangala. The scope of the work also includes underpasses and service roads for the entire length on both sides of the highway.

According to a company press release, revenues generated from the proposed tolling will accrue to an SPV (special purpose vehicle) formed for implementing the project.

The concession period of the project is 20 years, including the construction period of two years. The project is expected to be completed by the end of 2009, it added.

Source: business-standard.com

Maytas-NCC consortium wins airport projects from Karnataka

Two separate SPVs are to be set up for the airport projects. Maytas Infra, NCC and VIE will hold 37%, 37% and 26% stake in the two SPVs, respectively

Maytas Infra Ltd. announced on Tuesday that a consortium involving itself, NCC Infrastructure Holding Ltd. and VIE India Project Development and Holding LLC has bagged an order to develop and operate proposed airports at Gulbarga and Shimoga on BOT (build-operate-transfer) basis.

The contract has been awarded by the Infrastructure Development Department of the Karnataka Government.

Two separate Special Purpose Companies (SPVs) are to be set up for the airport projects. Maytas Infra, NCC and VIE will hold 37%, 37% and 26% stake in the two SPVs, respectively.

The construction period is 24 months from the date of signing the agreements. The concession period is 30 years and the agreement can be extended for a further period of 30 years.

Source:  indiainfoline.com

Cial has non-metro, foreign airports on radar

It plans to participate in the modernization of the 35 airports in the country, apart from the overseas projects

New Delhi: Cochin International Airport Ltd (Cial), the company that built the new international airport at Kochi, India’s first to be built by a private sector firm, is looking to build airports in India and in other countries in an effort to tap growing demand for airline infrastructure in many parts of the world.

Cial plans to participate in the modernization programme of 35 non-metro airports in the country and also wants to build airports in Sri Lanka, Ghana, Angola and Papua New Guinea, according to S. Bharat, managing director, Cial.

Cial was promoted by the Kerala government, financial institutions, airport service providers, non-resident Keralites and a group of entrepreneurs.

The single largest shareholder in the company is the state government with 35% of the paid-up capital.

Bharat added that Cial is in talks with an international finance company and a technical partner to promote a new company that will handle these projects.

Cial’s overseas plans come at a time when international airport operators such as Singapore’s Changi Airport International (CAI), Airport Company South Africa Ltd, Fraport AG and other leading players from Mexico, Turkey, Paris and Germany are looking to partner with Indian companies to bid for airport projects in the country. Singapore’s CAI had floated a joint venture company with Tata Realty & Infrastructure Ltd, a subsidiary of the Tata group for the airport modernization projects in India.

If it wins any of the projects to build airports outside the country, Cial will be following in the footsteps of Bangalore-based GMR Infrastructure Ltd, the lead partner in the consortium that runs Delhi International Airport, which will be developing Sabiha Gokeen International Airport (SGIA) at Istanbul, Turkey. GMR’S partners in this project are Malaysia Airports Holdings Berhard and Limak Insaat Sanavi San Ve Tic A S Turkey.

Bharat confirmed Cial’s overseas aspirations.

“The government of Sri Lanka has invited us to study the possibilities of building an airport there. We have got offers from Ghana, Angola and Papua New Guinea. Cial’s team will shortly visit those countries,” he said.

Cial plans to take up overseas airport projects on a build-operate-transfer (BOT) or build-own-operate (BOO) basis. Under the BOT model, the developer constructs and manages a project for a specified time before handing it over to the government; in the BOO model, the developer continues to operate the project with a local partner.

“The funding of these airport projects would be done by a special purpose company formed under Cial,” Bharat said.

He declined to name the international partners citing confidentiality agreements.

“We are also looking at bidding for the ongoing airport projects within India as we can make airports at lower cost,” Bharat added. The Cochin airport was built at a cost of Rs315 crore including the cost of land.

A government committee on infrastructure, headed by Prime Minister Manmohan Singh, has estimated that India will need to spend more than Rs40,000 crore in developing airports between 2006-07 and 2013-14. Of this, an estimated Rs31,100 crore is expected to come from public-private partnerships.

The ministry of civil aviation has decided to modernize and upgrade 35 non-metro airports across India.

Besides, the government is also planning to build greenfield airports at Navi Mumbai (Maharashtra), Kannur (Kerala), Hassan and Gulbarga (Karnataka), Ludhiana (Punjab), Greater Noida (NCR), Paykong (Sikkim), Cheithu (Nagaland) and Chakan (near Pune, Maharashtra).

“At a time when current airport modernization programmes envisage spending at least Rs5,000 crore for a single project, Cial had built a world class product on a very modest budget. Cial can cash in on its expertise in the upcoming non-metro airport projects,” said a Mumbai-based aviation analyst, who does not want to be identified because he is not authorized to speak to the media.

Maytas Infra FY08 revenues seen at Rs 1,600 cr

Teja Raju, Vice Chairman, Maytas Infra said that FY08 revenues are seen at above Rs 1,600 crore while profits are seen at over Rs 100 crore. He added that EPS for FY08 will be seen at Rs 18-19.

According to Raju, they have an order book of Rs 4,500 crore, mostly to be executed in 18-24 months. He added that they have no intentions of entering into real estate and that they intend to focus on construction.

Raju said that they have tied up with a Thai company for the Hyderabad metro projects. He added that they are looking at tie-ups for small projects in South and North India.

Excerpts from CNBC-TV18′s exclusive interview with Teja Raju:

Q: What kind of numbers are you looking at in FY09 given the kind of order book that you have on hand now?
A: We did revenues of about Rs 800 crore last year. We are looking at maintaining 100% growth, so about 100% last year’s growth is what we are looking at.

Q: You are saying that you’ll do Rs 1,600 crore in FY08?
A: We’ll do close to Rs1,600 crore profit, would go by that percentage. We did Rs 53 crore last year, so hopefully it would be double than this year is what we looking at.

Q: So you will probably deliver more than Rs 100 crore in net profit at the end of this fiscal year?
A: That’s true, that’s what we are hoping to do. We are on track and we are very confident that we should be able to achieve that.

Q: That is pretty much higher than our estimates, if you do a Rs 100 crore plus on net profit, what’s your own target on an earnings per share as a company?
A: 18 or 19 is what I think the market is, so we should be around that.

Q: Can you explain to us what’s contributing to this big growth that you expect in this financial year and what is your order book and how much of it gets executed within this year to bring your revenue up to that figure?
A: We have an order of about close to Rs 4,500 crore and this order book is spread across sectors like the road sector, the irrigation sector, oil and gas pipeline and power division. Most of the order book are supposed to be implemented over the time frame of 18 months or 24 months. All these order books have crossed the initial hurdle of globalisation, which would typically take longer time. So this is where we are quite confident about the numbers, which we are projected on.

Also lot of new work is coming out in these sectors, especially the power sector and oil and gas sector where we expect lot of orders to be called from the government. So if we can win a few more orders this would ensure that we have achieved these numbers.

Q: You have no designs of getting into the real estate business?
A: No, we are not getting into real estate, we want to be focused on infrastructure, that is construction and BOT development project.

Q: What kind of visibility do you have for the next year, FY09? Do you expect it to continue to grow at a 100% even next year or this year or the growth rate should moderate somewhat?
A: Lot of it depends on the kind of order, which should be called up by the government. Especially, next year being the election year. There would be many aggressive contracts coming up from the government or there might be a bit of a slow down. It would be very difficult to credit so far, but in the last couple of years things look good but election year is always a bit difficult to credit.

Q: You’ve got a couple of interesting tie-ups as well for the construction side. Can you just talk about who you have tied-up with and do they kick off within the next four to six months?
A: We have tie-ups, both in the construction side as well as the infrastructure development sector. In infrastructure development we have qualified for the metro rail project in Hyderabad. We have tied up with the Italian-Thai of Thailand over there. For some small airports in Karnataka, we have tied up with Vienna airports. The government has announced a couple of airports in the North recently, so we are looking at new tie-ups over there. In the construction side, we work with a lot of companies, Nagarjuna Construction is one of them, Gayatri Infra, Soma Construction. So these are the various partners we have.

Source: moneycontrol

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