A slowdown or just an interim blip?
Some cooling in order inflows in the last two months, post a strong 1HFY23
* After a strong inflow during 1HFY23, awards have seen lower growth from Sep-22 to midNov-22. While inflow growth during 1HFY23 on YoY/4-year CAGR basis stood at 86%/8%, it registered at 27%/4% in Sep-Oct ’22, respectively. This was lower vs Q2FY23 (33% YoY and 7% on 4-year CAGR basis).
* Importantly, a major part of the lower growth is due to poor awarding in the Roads sector; while awarding in the sector has been mildly low (2% decline on a 4-year perspective), it plunged by 25% during the Sep-Oct ’22 period. Ex-Roads, the 4-year CAGR has marginally moderated, from 11% to 9%, largely owing to softness in ordering on the Watersupply front. Mining, Power Equipment and Railways continue to clock strong growth.
Momentum in project tenders endures
* While growth on the awarding front has cooled down a tad in the last few months, the momentum in project tenders has sustained.
* Tenders logged a 4-year CAGR of 13% over Sep-Oct ’22 as against 15%/13% for Q2FY23/Q1FY23. Power T&D, Water supply and Irrigation have trailed a strong growth trajectory in the current fiscal.
* The tenders-to-awards conversion rate (ex-Roads) stood at 33% during Sep-Oct ’22, down from 44%/52% in Q2FY23/1HFY23.
Center’s capex momentum continues; States still not firing
* The Center has maintained its strong capex momentum; during Apr-Sep ’22, its capex growth stood at 50% YoY/21% on 4-year CAGR basis. Capex for Railways and Roads has grown +90% and +65% YoY, respectively. Overall, ~46% (39% during 1HFY22) of the budgeted capex has been carried out in the first six months of FY23. The Sep-22 capex at Rs900bn is considerably healthy.
* Till Sep-22, capex by key States saw ~2% YoY growth – which is a 6% YoY decline in 1QFY23 and 6% YoY growth in 2QFY23. States have spent ~25% of their budgeted capex during 1H which was ~31% during the same period last year. Capex by States in general was lopsided in the second half and, hence, there is a similar expectation this fiscal too.
Growth in credit to industries at ~15% YoY and that to infra at ~12%
* Credit to industries has steadily increased in FY22, after trending flat for a few years. Credit to industries and infrastructure has grown by ~15% and ~12% YoY, respectively. However, in absolute terms, growth has remained nearly flat since Feb-22 till August-22. Notably, on MoM basis, since Mar-22, the highest increase (Rs450bn) in credit to Industries was seen in Sep-22. Credit to industries, as a percentage of overall non-food credit, still remains extremely low, at ~26%.
* We increase our FY24/FY25 EPS estimate by 4/6% for LT. Our Dec-23 TP now stands at Rs2,215/share (earlier Rs2,131); we maintain BUY. We also maintain our positive view on KEC (TP: Rs505), KPTL (TP: Rs565), ACE (TP: Rs345) and HG Infra (TP: Rs820), with a BUY on all. Overall, we maintain our positive view on the sector, driven by its strong tender pipeline, softening commodity prices and expectation of good order inflow growth.
To Read Complete Report & Disclaimer Click Here
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
Above views are of the author and not of the website kindly read disclaimer