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Construction shares to build on Centre’s booster dose

| Updated on: Jan 16, 2018

Analysts see industry revival on higher cash flow, arbitration measures

Analysts expect better days ahead for companies involved in construction activities, thanks to the latest Central government move to infuse liquidity.

The Cabinet on Wednesday approved release of 75 per cent of the arbitration award money to the contractor (against margin-free bank guarantee) even for contracts that have been challenged in higher courts.

Analysts said this is a major step which will allow recovery of loans by banks and help construction companies to speed up execution of ongoing projects. Further, the move would help construction companies to bid for new contracts, they added.

Claim settlement time

Vijay Goel of Karvy said, the new arbitration measure would revive the construction sector in terms of addressing stressed loans and providing liquidity through releasing funds stuck in arbitration awards. This will eventually help in the revival of stalled projects as the release of payments would reduce debt and will be used for working capital requirements.

According to Systematix Research, the transfer of pending claims under the amended Arbitration Act can lower the claim settlement time (to 12-18 months) from an average seven years at present.

According to Systematix estimates, NCC has favourable arbitration awards worth ₹120 crore, of which ₹50 crore are from central PSUs and ₹70 crore from State PSUs. Hindustan Construction Company (HCC) would be a major beneficiary (due to cash infusion). The other beneficiaries include Simplex Infra, Gammon India, Punj Lloyd and IVRCL, said Systematix.

Goel said HCC has claims receivables worth ₹3,180 crore in its favour till August and the company expects 75 per cent of the amount (nearly ₹2,400 crore) will be received in the near term.

Much-needed breather

Edelweiss Securities said: “While exact timelines and modalities involved in the process are yet to be defined, we believe the decision will significantly aid construction companies struggling with balance sheet woes by improving their profitability.”

According to it, HCC has won about ₹3,000 crore of arbitration awards till date; it will get 75 per cent of this -- ₹2,250 crore. Similarly, NCC and Simplex Infra have won ₹300 crore arbitration awards each. Further, amount involved in arbitration claims are ₹1,200-1,300 crore for Sadbhav Group, ₹1,400 crore for NCC, ₹1,100 crore for Simplex Infra, and ₹400 crore for KNR Constructions, among others.

“We believe the potential fast-tracking of the arbitration process will lead to faster resolution of these claims,” it added.

On Thursday, shares of HCC zoomed 19 per cent to ₹32.75 on the BSE, NCC gained 1.1 per cent at ₹85.75, Sadbhav Infrastructure Project jumped 13 per cent at ₹110.85 and Punj Lloyd moved up 4.75 per cent at ₹24.25. However, shares of KNR Constructions and Simplex Infra slipped.

Published on September 01, 2016
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