The country’s infrastructure players are passing through a tough phase as this year comes to an end. They expect a turnaround early next year as the Government seeks to fix sector concerns with reforms.
While the Government plans to accelerate the implementation of roads projects to about 20 km per day, the pace is barely 5-6 km, according to sector players. They are also shying away from build, own and operate projects preferring EPC deals.
Interaction with some of the leading infrastructure firms show that the implementation of projects has been impacted due to delays in securing clearances, the high interest rates sapping their profitability and last mile hurdles.
The sector’s momentum witnessed over the last decade up to 2010 is missing in the past two years.
Govt efforts, concerns
Harsh Kumar Bhanwala, Executive Director, India Infrastructure Finance Company Ltd, said the country expects nearly $1 trillion investment in the infrastructure sector. Efforts are on by the Government to address some of the sector concerns by setting up a Cabinet sub-committee to focus on these.
It is hoped things will get better as several steps have been initiated by the Government and Prime Minister Manmohan Singh is personally looking into the concerns, he said during a recent visit to Hyderabad.
N. Goutham Reddy, Executive Director, Ramky Infra, said the infrastructure sector companies are strained due to three broad concerns. The cash flows have been affected due to project delays and receivables, equity market has dried up for some time, debt market is stretched and interest rate is high and receivables from Government are taking much longer time than normal.
The debtor days have gone up in the past up to 160-170 days impacting the operational cash flows. Yet, the outlook is positive and by the financial year-end, things should get a lot better, he said.
Hemanth Kanoria, CMD of SREI Infra, said the Government has to fix policy issues to accelerate the growth of the infrastructure in terms of land related issues, environment, fuel policy for power plants. Overseas investors are watching from the cliff and awaiting reforms to make further investments.
While most companies are looking at divestment of stake, which is a normal thing, the market conditions are not encouraging, he said.
T. Adi Babu, Chief Operating Officer, Finance, Lanco Infratech, said now there is some momentum at the Government-level with the Centre seeking to make things a more flexible in the infrastructure sector.
If the intended reforms are brought about, and interest rates moderate even by a per cent or two, things will change in a few weeks. The Government is looking at divestment of stake in NTPC and raising about Rs 13,000 crore. Unless reforms are initiated and changes brought about, investors may not be attracted to the offer. “We expect the changes will be brought about by then which will be beneficial to infra players,” Adi Babu said.
The changes will impact the companies and trigger a series of investments. Several investors are close to concluding deals, including Lanco which is at advanced stage of inking investments deals, the Lanco official said
K. Balarami Reddy, Executive Director of Finance, Group CFO, IVRCL, said the slow progress of projects due to implementation hurdles has resulted in tough conditions for infrastructure companies. Even in the recent RBI Credit Policy, there has been not much relief. Many companies expect things to change for the better.
The interest rate has gone up from 8 per cent to 12-13 per cent in the last two years. And the RBI has not acted upon it as inflation continues to be high. This wipes out all the profits companies register, Balarami Reddy said.
Most company stocks have taken a beating this year. In the recent rally some of them have gone up. If this continues, and reforms kick in as announced, a series of equity deals are predicted.
Atul Punj, Chairman of Punj Lloyd, said: “The market is a little cautious. However, the going has been reasonably good for Punj Lloyd. With infrastructure orders in India, Middle East and Singapore, the company also concentrated on furthering its business in other verticals.”