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Still early days
New orders are trickling in, but analysts believe re-rating of infra stocks is still some time away 

Shabana Hussain

The year started on a positive note for infrastructure companies, with Larsen & Toubro, IVRCL Infrastructure and Projects, Ramky Infrastructre and Punj Lloyd reporting order-book gains. In January alone, L&T Construction won orders worth ₹1,880 crore, IVRCL bagged an order worth ₹702 crore and Ramky Infra secured fresh orders worth ₹1,006 crore.

Stuck in a rut

Do the order wins mean gloomy days are over for the infrastructure sector? Analysts say it is too early to celebrate. “The order wins are more of an exception than the rule,” says Hansraj Singh, analyst, IDBI Capital Markets. “If you look at it, most of the gains have come from road, buildings and transmission & distribution segments. There is still a lull in power [generation] and mining projects, and I don’t see that changing anytime soon,” he adds.

The past one year has been tough for the infrastructure sector. Policy paralysis, land acquisition delays, environmental issues, rising inflation rate and hardening interest rates have reduced order inflows for the sector. The slowdown is not restricted to government orders, alone. Private sector orders, too, have declined because of a dearth of funding.

Vinod Nair, analyst, Pinc Research, says the sector has not seen sizeable orders in Q3FY12. According to a
report by Nirmal Bang Securities, total order inflows in Q3FY12 were ₹25,100 crore, of which 36% (₹9,050 crore) was won by L&T and the remaining by pure engineering procurement and construction players. “The overall momentum is still below expectation,” says Nair. He believes a revival in order inflows is likely in Q4FY12. 

He elaborates, “The RBI has indicated that interest rates will fall after March. We expect government orders to start moving post the state elections.”Nair says the cash-starved infrastructure sector could also get respite due to funding from private equity investors. 

Abhinav Bhandari, analyst with Elara Capital, expects the infrastructure sector to see an improvement in order inflows in the second half of FY13. “Bottlenecks such as awarding and bidding of coal mines, environmental clearances from the ministry of environment for hydropower projects and investments by various state governments in irrigation could get cleared in FY13,” he says. Though analysts appear to be pinning their hopes for a revival in FY13, for now, the ground reality seems to indicate otherwise.



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