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The financial performance of most road developers and roads asset owners such as Sadbhav Engineering, Ashoka Buildcon and ITNL in quarter ending March 2015 is expected to be muted, either at the topline level or in terms of profit growth. Construction revenue is likely to remain flat while higher capital cost may hurt the profitability for some companies.
IRB, which over the last three quarters reported robust growth in most of its projects, however, looks better placed than most peers. Toll revenue is expected to grow at a fast clip led by increase in traffic at Mumbai-Pune, Bharuch-Surat projects and start of its Amritsar-Pathankot project, estimate analysts at Emkay Global. However, construction revenues are likely to remain largely flat, pulling down overall growth in the March quarter. Benign costs and better revenue mix (in favour of higher margin BOT projects) should prop up margins and lead to good growth in net profit.
Sadbhav Engineering with more projects with high commercial traffic mix is more leveraged to potential uptick in economic growth. Strong project execution is expected to lead to revenue growth of 15 per cent while Ebitda margin is estimated to come in slightly lower (by 35-40 basis points) at 10.6 per cent. Higher interest expenses may lead to fall in profit. However, Sadbhav is better placed to meet its equity requirement into current BOT portfolio over the next three years given its current cash balance and the internal accruals.
Ashoka Buildcon, which has not seen significant traffic decline in most of its BOT projects, is expected to score on operational road assets, which will provide support to revenues. However, both Ashoka and Sadbhav will benefit from order awards from both the EPC (engineering procurement and construction) and BOT (build operate transfer) segments.
On the other hand, India's largest road player, ILFS Transportation (ITNL), with its road portfolio spread across 2,831 km, is estimated to register a marginal fall of 1.4 per cent in net profit over the year ago period, due higher interest and tax outgo. The company's revenues though are expected to increase by 4.8 per cent YoY due to strong growth in BOT portfolio; construction revenues likely to remain flat. While better revenue mix (higher contribution from more profitable BOT portfolio) will aid margins, increase in interest expenses and tax outgo will curb profits. Going ahead, the company may find it difficult to bid for new BOT projects due to its stretched balance sheet, say analysts.
PhillipCapital in its analysis said that barring few focused BOT players like IRB, Ashoka and Sadbhav, most developers invested indiscriminately into projects across sectors such as airport, power and mass rapid transport system. However, they are struggling to fund the equity requirement for the under construction project due to lower than expected cash flow generation from their operational projects on the back of deteriorating macro environment.
''Developers like GMR, GVK, Lanco, Gammon Infra, L&T IDPL to put up larger part of their BOT road assets on the block to raise capital that they can plough back into new projects. The divestments might be in the form of strategic stake in the BOT arm like the recent L&T IDPL deal or outright sale of BOT assets like GMR,'' it said.
Against this backdrop, analysts observed that NHAI’s road BOT project award remained muted due to most developers facing financial crunch; project award on EPC basis though picked up. Order inflows from other sectors also failed to enthuse. While revenue visibility still remains robust, execution impediments have resulted in soft performance on the top line front over the past couple of quarters. Improvement in execution and working capital cycle remain key for the sector in general.
IRB, which over the last three quarters reported robust growth in most of its projects, however, looks better placed than most peers. Toll revenue is expected to grow at a fast clip led by increase in traffic at Mumbai-Pune, Bharuch-Surat projects and start of its Amritsar-Pathankot project, estimate analysts at Emkay Global. However, construction revenues are likely to remain largely flat, pulling down overall growth in the March quarter. Benign costs and better revenue mix (in favour of higher margin BOT projects) should prop up margins and lead to good growth in net profit.
Sadbhav Engineering with more projects with high commercial traffic mix is more leveraged to potential uptick in economic growth. Strong project execution is expected to lead to revenue growth of 15 per cent while Ebitda margin is estimated to come in slightly lower (by 35-40 basis points) at 10.6 per cent. Higher interest expenses may lead to fall in profit. However, Sadbhav is better placed to meet its equity requirement into current BOT portfolio over the next three years given its current cash balance and the internal accruals.
Ashoka Buildcon, which has not seen significant traffic decline in most of its BOT projects, is expected to score on operational road assets, which will provide support to revenues. However, both Ashoka and Sadbhav will benefit from order awards from both the EPC (engineering procurement and construction) and BOT (build operate transfer) segments.
On the other hand, India's largest road player, ILFS Transportation (ITNL), with its road portfolio spread across 2,831 km, is estimated to register a marginal fall of 1.4 per cent in net profit over the year ago period, due higher interest and tax outgo. The company's revenues though are expected to increase by 4.8 per cent YoY due to strong growth in BOT portfolio; construction revenues likely to remain flat. While better revenue mix (higher contribution from more profitable BOT portfolio) will aid margins, increase in interest expenses and tax outgo will curb profits. Going ahead, the company may find it difficult to bid for new BOT projects due to its stretched balance sheet, say analysts.
PhillipCapital in its analysis said that barring few focused BOT players like IRB, Ashoka and Sadbhav, most developers invested indiscriminately into projects across sectors such as airport, power and mass rapid transport system. However, they are struggling to fund the equity requirement for the under construction project due to lower than expected cash flow generation from their operational projects on the back of deteriorating macro environment.
''Developers like GMR, GVK, Lanco, Gammon Infra, L&T IDPL to put up larger part of their BOT road assets on the block to raise capital that they can plough back into new projects. The divestments might be in the form of strategic stake in the BOT arm like the recent L&T IDPL deal or outright sale of BOT assets like GMR,'' it said.
Against this backdrop, analysts observed that NHAI’s road BOT project award remained muted due to most developers facing financial crunch; project award on EPC basis though picked up. Order inflows from other sectors also failed to enthuse. While revenue visibility still remains robust, execution impediments have resulted in soft performance on the top line front over the past couple of quarters. Improvement in execution and working capital cycle remain key for the sector in general.
