Players see a phase of consolidation ahead

Infrastructure companies’ margins have been stretched by high interest rates, resulting in most of them posting losses in the second quarter ended September 30.

Mounting debt, high interest outgo, delays in clearance of projects and lower order flow have all resulted in the stress on their financial health.

Airport operators and leading infra firms GVK and GMR have both posted losses, along with power and infra firm Lanco and EPC and infra player IVRCL. Only NCC posted profits.

Many of the firms say they will continue to face such pressure, at least till the end of the financial year. Next two quarters will serve as a phase of consolidation. For those purely into infrastructure projects with accent on EPC, such as IVRCL, debt servicing has clipped its profitability.

Fuel shortage

In the case of infra firms that are also into power generation such as GVK Power & Infrastructure Limted, GMR and Lanco Infratech Limited, fuel shortage has hit their performance numbers hard.

The fuel shortage has taken a heavy toll on Lanco as it had to contend with a plant load factor of 44 per cent. This was due to low gas supply and coal supply issues, according to T. Adibabu, Chief Operating Officer of Finance at Lanco Infratech.

The GVK numbers were hit by truncated gas supply for its three power plants. In addition, the company had increased its debt to hike stake in both Mumbai and Bangalore international airports and also acquired a coal mine in Australia. The debt service impacted its numbers. For the second consecutive quarter, it posted losses.

Y.D.Murthy, Executive Vice-President Finance, NCC Limited, said profitability was impacted by debt service commitments. The interest rates are still ruling high. “It will take some more quarters and measures by RBI to tone down the rates. Thereafter it will take a couple of quarters to reflect on the performance of companies,” he said.

Most of the infra companies — GVK, Lanco, NCC, IVRCL, Madhucon Projects — have indicated at stake divestment in some of the matured infra projects. This will infuse fresh equity and reduce the debt burden. But the market conditions seem to be holding up investments and divestment.


According to a brokerage firm, “In the next two quarters we will see some equity deals in the infrastructure companies.”

The balance sheets of most infra companies have been stretched. The only way out is to reduce debt. This could be addressed by stake divestment at the holding company. Once this is done, the debt will also come down, Adibabu explained.

(This article was published on November 15, 2012)
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