Order inflows hit 2-year low in July-Sept

Order inflows for capital goods, engineering and infrastructure companies hit a two-year low in July-September, confirming a slowdown in the investment capex of core industries amid high cost of borrowing and subdued demand.

While ailing state electricity boards put orders on hold due to huge losses in the last two years, fresh orders from NTPC will start flowing in after the outcome of the Ansaldo court case pending in the Supreme Court. There was a modest order inflow of Rs 7,200 crore from the National Highways Authority of India (NHAI) to GMR Infra for widening the 555-km Kishangarh-Udaipur-Ahmedabad highway, from four to six lanes.

The slowdown in investment cycle and rate of capital formation is apparent from the lesser number of orders placed during July-September. As many as 64 firms announced order inflows worth Rs 40,011 crore during the second quarter to the Bombay Stock Exchange and the National Stock Exchange. This was 21.3 per cent less than Rs 50,856 crore worth orders announced by 79 companies during the same quarter last year. On a sequential basis, order inflows were down by 19.55 per cent. For the private sector, orders declined to Rs 9,706 crore from Rs 29,255 crore during the second quarter of 2010-11.

While engineering and construction company Larsen & Toubro reported a 30 per cent decline in orders, power equipment firm BHEL did not receive a single order during the quarter. GMR Infra and Jaiprakash Associates received orders after a gap of five quarters. Barring the recent bulk tender from NTPC, which was long overdue, the overall motion in the power sector almost came to a standstill. Easing of interest rates and structural reforms by the government would act as catalysts for a revival in the capex cycle in the medium term, analyst reports suggested.

Order inflows were muted across construction companies due to slower order flows from the industrial and power segments. Orders from the central and state government authorities in areas like urban infrastructure and water were hit by slow decision-making in the government machinery. Also, power sector orders decelerated due to uncertainty over the availability and pricing of fuel, and higher borrowing costs. Orders from the building and road segments were relatively robust.

A slowdown in the execution of power sector projects and an uncertainty over the availability of fuel have already led to a visible slowdown in power sector orders. No wonder, there was no order for Kalpataru Power, Thermax, BGR Energy and many others. The order books of construction companies HCC, PBA Infra and Hindustan Dorr remained blank, while Madhucon Projects, Ashoka Buildcon and Gammon India failed to receive orders for the second consecutive quarter.

Project award is likely to gain momentum during this half of the year, as 60 highway projects of 7,994 km, worth Rs 64,400 crore, have been identified and the NHAI has invited bids for 4,600 km year to date.

All project awards in 2011-12 would be on the public-private partnership model and private sector bids have been fairly aggressive in the initial round. The roads sector accounts for 15 per cent of the total infrastructure lending. With an exposure of Rs 92,600 crore, banks remain the single largest funding source for road projects.