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Execution and inflows mixed; miss on margins

Infrastructure companies’ earnings largely missed estimates in Q4FY22 with KNR being an exception with better earnings. Order awards momentum picked up in Q4 but inflows for listed players were a mixed bag. Inflows for L&T, PNC & GRIL were robust while being moderate to weak for others. Execution was mixed but margins largely missed estimates due to higher input costs. Net debt decreased QoQ/YoY led by improved year-end recoveries. Cargo volumes for APSEZ and GPPL were weak due to lower container volumes. Concor’s originating volumes were impacted due to lower EXIM cargo though GDL saw robust growth aided by market share gains. Domestic volume growth was strong for Concor

NH awards robust in Q4; mixed inflows for listed players, backlog moderate to strong

Highway awards improved materially in Q4FY22 to 6,896km (5,835km in 9MFY22). For FY22, 12,731km of NH (vs. 10,965km in FY21) were awarded ahead of ministry’s award target of 11,000km. However, inflows for our coverage universe were on lower side with L&T/PNC/GR/KEC being exceptions with strong inflows. Having said that, backlogs for most companies are moderate to strong, with book to bill of 2x-4x TTM revenue

Execution was mixed; margins largely missed estimates due to higher input costs

Execution for EPC companies was mixed with PNC, Ashoka, NCC and KNR reporting strong execution but GRIL, HG, Ahluwalia and KEC reporting YoY lower execution. Specifically, NCC reported a robust turnaround in operations. EBITDA margins largely missed estimates due to higher commodity prices with KNR being an exception where margin beat was led by better revenue mix.

Net Debt levels decline and working capital improves aided by year-end recoveries

Net debt levels for our coverage universe declined QoQ/YoY aided by improved working capital and strong cash generation. PNC had net cash of Rs3.1bn in Mar-22 while NCC saw sharp reduction in debt to Rs11.8bn in Mar-22 (vs. Rs20.4bn in Dec-21) aided by higher than usual recoveries and cash inflow of Rs475m from Vizag land deal. Having said that, debt levels in Q1FY23 are likely to witness a seasonal increase.

L&T: Inflow surprised positively led by overseas orders; E&C margins miss estimate

L&T’s consolidated inflows grew 46% YoY to Rs739bn while E&C inflows grew 55% YoY to Rs611bn led by strong international inflows. While order prospects for FY23 at Rs8.5tn (domestic: Rs6.3tn) are lower than Rs9.1tn in PY, conversion/order win ratio is likely to improve. Order backlog grew 9% YoY to Rs3.6tn (3.3x TTM revenue). E&C revenue grew 8.7% YoY to Rs400bn. E&C margins fell 250bp YoY to 10.2% due to high input costs. PAT at Rs36.2bn only marginally missed estimate as lower tax rate offset the margin miss. L&T’s “Lakshya-2026” aims to improve profitability and lower capital intensity.

Ports: Container volumes weak for both APSEZ and GPPL

Adani Ports & SEZ (APSEZ): PAT declined 20.5% YoY to Rs10.2bn due to Fx loss of Rs5.2bn in Q4FY22 (vs. gain of Rs240m in Q4FY21) and lower cargo. APSEZ unveiled an aggressive Rs230bn capex plan over the next three years which should constrain ROCE expansion in the near term. APSEZ re-iterated its cargo guidance of 500mt by FY25. Gujarat Pipavav Port: Cargo grew 2% YoY to 3.9mt led by bulk volumes (up 43% YoY to 1.5mt). Container cargo fell 16% YoY to 163k TEUs due to higher skipped calls and lower volumes from new services. Recurring PAT grew 19% YoY to Rs683m.

Logistics: EXIM volumes muted for Concor; GDL saw strong growth in ICD volumes

Container Corporation of India (Concor): PAT at Rs2.6bn missed estimate of Rs3.1bn due to higher employee related provisions and additional provision of ~Rs150m for LLF. Capex guidance of Rs80bn over next four years appears very ambitious to us and we believe it is too early to start building the same given the impending divestment. Gateway Distriparks (GDL): ICD volumes grew 16% YoY to 90k TEUs led by market share gains in NCR market (15.8% from 13% in PY). CFS volumes declined by 5.8% YoY to 87k TEUs due to discontinuation of Punjab Conware contract w.e.f 1st Feb-22. PAT at Rs850m beat estimate of Rs363m led by higher volumes and other income, lower depreciation and tax write-back

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