Monsoons To Be A Dampener For Infrastructure Firms In The Second Quarter
The July to September quarter is expected to be a seasonally weak one for infrastructure companies as on-ground execution is anticipated to take a hit due to good monsoon rains. Even as revenues are expected to be muted, brokerage firms expect certain companies to improve their profits, aided by lower interest cost and tax savings.
The top six infrastructure companies are expected to report around 7 percent growth in revenue for the second quarter of the financial year 2016-17 compared to the corresponding quarter last year, according to consensus estimates of analysts tracked by Bloomberg. Earnings before interest tax depreciation and amortisation may grow 23 percent while net profit is expected to rise 29 percent.
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If we exclude IRB Infrastructure Ltd., which is expected to report strong earnings, from the list, the revenue growth projection drops to 4.5 percent. EBITDA may decline 6 percent and net profit is expected to drop 22 percent, according to Bloomberg consensus estimates.
Profit Expectations
Certain companies like NCC Ltd. J Kumar Infraprojects Ltd. and Sadbhav Engineering Ltd. are expected to post an uptick in profit growth in the otherwise seasonally dull quarter due to reduction in interest cost.
IRB Infrastructure's focus on the higher margin build-operate-transfer business could push its profit higher, while Sadbhav Engineering's profit may rise due to the beneficial impact of a lower base in the corresponding quarter last year.
More Order Wins
Infrastructure companies are expected to report strong order wins in the September quarter. After a slow start in the April to June quarter, the National Highway Authority of India started awarding more projects in July and August.
- July and August (provisional data): 925 kilometers of roads worth Rs 10,400 crore.
- April to June: 576 kilometers worth Rs 6,800 crore.
Key Things To Watch Out For
- Ashoka Buildcon Ltd. and IRB Infrastructure: Management guidance on strong order inflow.
- Sadbhav Engineering: Execution in irrigation division.
- NCC: Management commentary on debt reduction.
(These expectations have been compiled from reports of IIFL Private Wealth Management, Axis Capital, Kotak Securities, ICICI Direct, IDFC Securities and Antique Stock Broking.)
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