Infra stocks now going cheaper than a kilo of onions

Stocks of several infra companies quoting below Rs 10/share, but analysts say it isn't time to buy

Low stock prices are often perceived to be attractive by investors. If that be the benchmark then several infrastructure stocks are quoting below Rs 10. Typically, penny stocks are not names that can be recognized instantly. But today for a sum of Rs 100, an investor can buy shares in several infrastructure companies not just one. So is this the time to buy companies like Hindustan Construction, Madhucon Projects, NCC, GVK Power, GMR Infra, Lanco Infratech and Punj Lloyd?

While most analysts refused to go on record, but this is what one infrastructure analyst said: “This means that these companies are sitting on the brink of bankruptcy. And in an environment of rising interest rates and slowing growth, the market does not believe that their business model is sustainable.”

At the start of the fiscal, the markets were factoring in a recovery in growth and hoping for interest rates to ease. With the currency over-shooting and the Reserve Bank of India tightening rates, the hopes of interest rates easing are all but dashed. The outlook on these companies is not very positive as they are sitting on a pile of debt and the macro-economic situation is only worsening with every passing day. Also, with interest rates not easing their debt burden will not come down. Many of these companies do not even generate enough cash to cover their interest costs. Added to this, RBI has cut the country’s economic growth expectation to 5.5% from the earlier 5.7%, which will also hinder their recovery.

Not surprising, ratings agency India Ratings has a negative outlook on the sector in the second half of the fiscal too. The collateral damage of fuel shortage, inability to get clearances and high interest rates will be borne by the infrastructure companies for some more time.

India Ratings says around 7% of the ratings were downgraded to ‘IND C’ or ‘IND D’ during the last six months to reflect defaults in payment of debt service or pending finalisation of loan restructuring packages. The agency also says that 39% of the companies in the sector it rates have ratings below ‘IND BBB-’. The sector’s pain is expected to persist for another 12 months at least, believe analysts.

Given that the market is in a risk-off mode, nobody knows how long it will take before these stocks turnaround.

Sonam Udasi, head of research at IDBI Capital, says: “The stock price suggests that the market is questioning their business models and their sustainability.”

Even though the de-bottlenecking has started in select sectors like power, the story is not very promising for other infrastructure sectors. Several brokerages say roads developers are grappling with multiple issues too. The ministry of road transport and highways has failed to attract bidders for nine road projects worth Rs 10,000 crore since October 2012. The ministry has conveyed to analysts that the lack of debt and equity and overall slowdown has prevented road developers from bidding.

	FY13 ( Rs Crore)		Price in Rs
Company Name	Total Debt	Interest Cost	6-Aug-13
GMR Infra.	36489.78	2099.00	11.46
Lanco Infratech	31376.85	2421.44	5.38
GVK Power Infra.	18564.03	746.09	5.59
Hind.Construct.	9968.78	900.28	10.48
Punj Lloyd	6722.19	780.76	22.85
Madhucon Proj.	4822.59	362.96	8.08
NCC	3638.56	595.09	18.55
Source Capitaline
Compiled by BS Research Bureau