Stocks catering to infrastructure have been on the decline on worries that higher interest rates could result in project delays and raise in borrowing costs. Concerns over profitability also affected the sentiment for these stocks. Infrastructure sector companies have been better off in terms of revenues in the current (January-March) quarter so far on y-o-y basis as also against the last quarter (October-December), but bottomline growth has been negative during the past two and a half months.

Analysts feel various players of the sector — developers/operators, EPC/construction outfits and equipment manufacturers — may not see improvement in the cash inflow and profitability in next six months.

Mr Nitin Bhasin, Sector Analyst at Ambit Capital, told Business Line in the fourth quarter FY-11, sector's three broad verticals related companies have shown marked improvement in revenues/sales. “Particularly construction equipment manufacturers have seen significant growth in sales in January and February.”

The overall growth in the infrastructure companies in the January-March quarter could vary between 20-22 per cent, he felt. “Billing situation is showing signs of improvement, but payment inflow is still tardy,” he added.

Profitability factor

The profits were going to be adversely impacted by this on many counts, analyst suggested.

According to Mr Arvind Mahajan, ED of KPMG Advisory Services, revenue growth in this quarter and the next are likely to be visible, but the profitability could be under pressure.

A kind of policy paralysis at the level of central government viz-a-viz some States in the recent months has caused delays in project execution and payments. “This has in turn have created problem of higher working capital requirement for the companies and larger interest burden,” Mr Bhasin said.

“Inflation has also been a negative factor for the infrastructure companies. The growing order book reflected demand for infrastructure. But this also meant many smaller companies with inadequate capability have joined the bandwagon and complicated the overall scenario in terms of execution, monitoring and payment,” said Mr Mahajan.

The external problems have also affected some of the local companies. For example, Punj Lloyd, which has an order book worth Rs 9,840 crore from Libya, has been downgraded by brokerages. Fear is that the volatile situation in Libya may further impact company's execution of the projects.

L&T, which has fully hedged yen denominated debt, raised market concerns after the calamities in Japan and a possible deterioration of economic scenario in the third largest economy going forward.

comment COMMENT NOW