IGI Logo

Stable tendering and awarding, double digit growth over 1QFY20 on low base

This report is a monthly update on project tendering and awarding activity in the engineering and infrastructure space. We assess the trends in Jun’21. As Q1FY21 was marred by the Covid-19 pandemic, our YoY comparison represents a 2-year CAGR for monthly and quarterly activity.

Tendering Activity

* In Q1FY22, overall tendering activity was up 30% YoY (value wise), led by a stable monthly run rate of ~Rs460bn. Key sectors such as Roads and Water Supply recorded 29% and 60% growth, respectively. Railways dragged down the overall run rate (down 26%). Irrigation and Real Estate displayed a broadly flat trend YoY. Important to note that FY20 was a weak year from tendering perspective and hence 2HFY22 remains critical.

* Similarly, tendering activity in Jun’21 grew 21% YoY (flat MoM), driven by Roads (up 14%), Water Supply (up 52%) and Irrigation (up 2.5x). TTM Jun’21 total tendering value stood at Rs7.55tn vs. Rs5.95tn for TTM Jun’20.

Awarding Activity

* In Q1FY22, overall awarding activity was up 10% YoY (value wise) with an average monthly run rate of Rs168bn, on account of strong momentum in sectors such as Roads (up 2.8x), Railways (up 79%), Power Distribution (up 2.7x) and Mining (up 4x). This excludes L&T awards. FY20 was a weak year from award perspective and hence awarding in coming quarters remains critical.

* In Jun’21, monthly awarding activity was at a 1-year low of Rs137bn (ex L&T) despite the positive trend in Roads (up 59%) and Railways (up 2.8x). TTM Jun’21 total awarded value stood at Rs3.74tn vs. Rs1.94tn for TTM Jun’20.

Central & State Capex, Industrial Credit

* For the Apr-May’22 period, the Central government met 11% of its annual budget (Exhibit 35), with an outflow of Rs630bn (up 14% YoY) as compared to 13% achieved last year (though on a lower base).

* While the overall Central government capex growth during Apr-May’21 stood at 14% YoY, three key ministries (Railways, Roads and Defense) reported 40% YoY growth.

* Although State government spending (top 15 states) was low at Rs227bn during AprMay’21, it was in line with the last year’s pace of spend (5% of the annual budget estimates). On a combined basis (Central + States), capex growth stood at 16% YoY.

* Credit growth to industries stood at 0.8% YoY as on May’21, while infrastructure credit grew 2.8% (Exhibit 36). Important to note that credit growth to industries stood at 3.3% for the last three years and 1.4% for the last five years. Overall industrial credit outstanding (as % of non-food credit) has gradually declined to ~27% as of May’21 and currently stands at a decadal low (Exhibit 38). During FY10-FY15, this ratio stood at ~45%.

Top picks from Emkay coverage

* L&T, KEC and KPTL are our top picks (Buy) in the sector, based on: 1) superior execution capabilities, 2) existing order backlog, and 3) relative valuation. While KEC is expected to see strong inflow growth (50%) during 1QFY22, KPTL inflows would be weak. LT (exservices) had low inflows in Q1FY21 (down 55% YoY) and, hence, could show decent inflow growth during 1QFY22.

* Some of the companies, like JMC Projects (Not rated), saw strong order inflows during the current year. During Q1FY22, inflows stood at Rs35bn – YoY growth of 70%. YTD inflows are already at ~60% of last full fiscal (Rs79bn of inflows).

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