Low base effect perks up ordering growth; run-rate still below normal
Key trends seen in May’20
* Despite Covid-19-related disruptions, awarding activity picked up mom and yoy, albeit onan extremely low base of last year (election related slowdown). Overall, orders improved 82% yoy in May’20, primarily due to a surge in irrigation (up 5,677% yoy) orders.
* The total value of tenders published in May’20 saw a hike of 52% yoy due to a low base effect on account of ordering slowdown prior to general elections in May’19, but fell by 17% mom. Tendering activity was driven by a pick-up in sectors such as Water Supply (up 270% yoy) and Roadways (up 68% yoy), while key sectors such as Railways (down 55% yoy), Power Distribution (down 48% yoy) and Irrigation (down 29% yoy) continued to decline.
* Major orders finalized in May'20: 1) Rs16bncontract won by KNR Constructions in JV with Navayuga and NCC for water lifting in Telangana under Kaleshwaram project;2) Tata Power bagged a contract worth Rs12bn for modernization of infrastructure of 37 Airfields of Indian AirForce, Indian Navy and Indian Coast Guard; and 3) KEC International wona contract for T&D projects in India, Bangladesh, Africa and the Americas worth Rs9bn.
Top picks from Emkay coverage
* L&T:Despite worrying near-term outlook, we believe that the long-term outlook for L&T remains promising on a strong balance sheet and technical competence across segments. Past track record suggests that L&T often gains the market share in a difficult macro environment as weaker players struggle.
* Cummins India:We are structurally positive on domestic Powergen and Industrial segments, backed by the underpenetrated power back-up market, demand visibility from metro projectsand data centers.
* KNR Constructions and PNC Infratech:KNR and PNC are among the few construction companies that have maintained theasset-light approach and yet have a focused strategy to bid for projects in their focus geographies, thereby generating consistent OCF/FCF.
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