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FY19 tender and award activity muted; Water and Infra report growth
Key trends observed during FY19 and Mar-19:
* The total value of tenders published in FY19 stood at Rs8.9tn, down 3%, while in Mar-19 it was Rs1.2tn, up 26% YoY. Despite overall decline in FY19, we witnessed a sharp pickup in tender activity in the Water Supply, Water Treatment, and Irrigation sectors. However, traditionally large sectors such as Roadways and Railways saw declines.
* Award activity in FY19 was up 2% to Rs4.1tn, while in Mar-19, it stood at Rs233bn – down 76% YoY. In contrast to the tender activity, Roadways, Railways and Infrastructure and Water sectors witnessed strong awarding activity in FY19.
* Power equipment, Power distribution, and Process industry sectors witnessed a sharp fall in award activity, in line with the decline in ordering activity from Power Grid and weak private capex cycle.
* Government spending continues to drive order activity in infrastructure sectors such as Roadways, Railways, and Water Supply, Water Treatment and Irrigation. However, as we have been highlighting, the funding pattern is changing fast from Central Governmentdependent to a distributed public funding model under which states and municipalities, together with PSUs and multi-lateral funding agencies, are playing an important role.
* FY19 tender and award activity data also suggests a strong focus on traditional state and municipal infrastructure segments such as Community Services, Water Supply, Water Treatment and Irrigation, further reinforcing our distributed public funding model thesis.
Top picks from Emkay coverage
* Larsen & Toubro: We expect L&T to continue its strong execution momentum in 4QFY19, driven by 15%/20% revenue growth in Domestic infrastructure/Hydrocarbon segments. It has announced robust order inflows in Q4FY19, implying FY19 order inflow growth could be 10-23% for the full year (ahead of guidance).
* Cummins India is expected to report a decline in Q4FY19 exports revenue due to uncertainties in the Middle East and Africa and the pre-buying impact in the European markets in 9MFY19. However, for Cummins, we are structurally positive on the Domestic powergen and Industrial businesses, as well as emerging market export opportunities.
* We are OW on L&T and Cummins, while UW on ABB and Siemens in our sector EAP
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