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Revival in tendering/awarding activity remains elusive
This report is a monthly update on project tendering and awarding activity in the Infrastructure space – we assess the trends seen in Jan’20.
Key trends seen in Jan’20
* The awarding activity continues to decline across most major segments of infrastructure activity in India, as overall quantum fell 45% yoy/23% mom in Jan’20. Sectors that reported declines were Roadways (down 85% yoy), Power Distribution (down 78% yoy), Infrastructure (down 93% yoy), Water Supply (down 37% yoy) and Process (down 32% yoy). However, Pipeline (148% yoy) and Power Equipment (197% yoy) reported robust growth in Jan’20. Irrigation segment also witnessed a large order worth Rs 39bn awarded to L&T during the month, which we have excluded for comparison purposes (past year’s numbers have also been adjusted for L&T order data)
* Tendering activity too worsened again in Jan’20 and as total value of tenders published in Jan’20 stood at Rs659bn (as against Rs1.05tn in Jan’19), down 37% yoy but up 14% mom. The decline was largely attributed to sectors such as Railways, Irrigation, Community Services, Water Supply, Real Estate and Power Distribution.
* Major orders finalized in Jan’20 include: 1) a contract worth Rs15bn won by Tata Power Solar Systems from NTPC for a 250MW solar project under the CPSU scheme; 2) a contract worth Rs11bn won by Sterlite Technologies for T-Fiber project to deliver digital infrastructure to rural citizens in Telangana; and 3) a contract worth Rs5bn won by Hindustan Construction Co. in JV with VCCL, for the design and construction of twin tunnel of Delhi MRTS in Delhi.
* On YTD FY20 basis, we reiterate that the tendering/awarding activity still remains extremely weak across segments and is now down 39%/46%. We are now increasingly cautious on FY20/21E order inflows for our coverage stocks.
Top picks from Emkay coverage
* L&T: We expect L&T to continue its execution momentum, driven by 10%/16% revenue/PAT CAGR over FY19-22E, though the order weakness and working capital stretch in the near term are the key monitorable. We have a Buy rating on L&T with a TP of Rs 1,575.
* Cummins India: We are structurally positive on domestic Powergen and Industrial segments, backed by the underpenetrated power backup market, demand visibility from the upcoming metro projects, airports and data centers. We have a Buy rating on Cummins India with a TP of Rs 741.
* We are OW on Cummins and BHEL, while UW on L&T, ABB and Siemens in our sector EAP.
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