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Execution and inflows mixed; margin pressure likely

Tendering and ordering activity remained strong in Q4FY22 though order intake for most listed companies were weak due to heightened competition from smaller/ unlisted players. Execution to decline or grow moderately for most companies with lower executable backlogs while NCC/KEC are likely to post strong YoY growth. Margins are likely to remain stable QoQ for road developers. Debt levels for diversified companies like NCC, L&T and KEC are likely to decline QoQ led by surge in year-end recoveries. Major Ports cargo growth was muted at 1.9% YoY due to lower iron ore/coal cargo while container volumes on the West Coast declined by 3.6% YoY. EXIM cargo growth for Concor is likely at 1.8% YoY while remaining relatively strong for GDL at 7.6% led by market share gains.

Tendering/ordering improved in Q4FY22 though listed companies yet to benefit

Tenders grew by 18% YoY to Rs2.8tn led by Highways and water supply segments. Order awards grew 30% YoY to Rs1.5tn in Q4FY22 (up 35% YoY) driven by Highways, water supply, urban infra. Key beneficiaries in coverage universe are L&T (Rs272bn), PNC Infra (Rs68bn) and GR Infra (Rs58bn). Competitive intensity remained high in NHAI orders with upto 12/15 bidders in HAM/EPC projects. Order inflows for most other companies are likely to remain weak and below guidance levels.

Revenue growth subdued; balance sheet remained stable with inflows largely weak

Execution is likely to grow moderately/decline for most companies due to lower executable order backlogs. We expect KEC/NCC to post strong YoY growth of 15%/16%. Others should report marginal decline or moderate revenue growth with GRIL likely to report 21% YoY decline. EBITDA margins are likely to remain largely stable QoQ with the impact of the recent surge in commodity prices likely to be felt Q1FY23 onward (expect 90 bps qoq decline in HG Infra’s margin at 15%). Debt levels are likely to remain stable QoQ with NCC/KEC likely to report sharp reduction aided by year end recoveries

L&T: Order inflows weak, but execution to remain strong led by robust backlog

Led by weak order announcements of Rs175bn (average of range) in Q4, we expect E&C order inflows to grow moderately by 5.4% YoY to Rs417bn (assuming Rs80bn more announcements pertaining to Q4FY22). Our estimates imply E&C order inflow of Rs1.25tn in FY22 (5.9% yoy decline vis-à-vis guidance of 10-12% growth). Consolidated inflows are likely to decline 6.6% YoY to Rs540bn in Q4. We expect 6.5% YoY growth in E&C revenue and expect E&C margins to remain flat YoY to 12.7%. Consolidated revenue to grow 8.1% YoY to Rs520bn, EBITDA to grow 9.6% YoY to Rs70bn, with EBITDA margin expanding 20bps YoY to 13.5% with PAT at Rs36.7bn (up 11.5% YoY).

Ports: Container volumes weak for both APSEZ and GPPL

Adani Ports & SEZ: Cargo (including Gangavaram) grew 5% QoQ to 78mt in Q4FY22 driven by strong growth in dry bulk volumes. Container cargo declined 6% QoQ. Expect PAT at Rs41bn in Q4 (includes fx MTM loss of Rs5.8bn).

GPPL: Volumes grew 28% QoQ to 3.9mt driven by bulk volumes (up 119% QoQ) while container volumes continued to remain weak. Expect PAT at Rs599m (up 4.6% YoY).

Logistics: Moderate EXIM volume growth likely for Concor; GDL rail volumes buoyant

Concor: Expect originating volumes to grow 4.2% YoY to 678k TEUs (EXIM up 1.8% YoY, domestic up 18.2% YoY). Revenue to grow by 8% YoY to Rs20.9bn. PAT growth appears steep at 215% YoY to Rs3.1bn as PY includes provisions for retirement benefits, service tax dues and prior period land license fee. PBT growth is likely to be 14% YoY at Rs4.3bn on adjusted base of Rs3.7bn

GDL: Expect rail volumes to grow by 7.6% YoY to 84k TEUs with continued market share gain in NCR market but dampened by increased competition in the Ludhiana market after restart of APSEZ ICD. Rail realisations to remain flat QoQ but would be lower YoY on higher base. CFS volumes to decline sharply by 16% YoY to 78k TEUs as Punjab Conware concession ended in Jan-22. Overall, we expect 6%/5.5% YoY revenue/EBITDA decline due to lower volumes/realizations. PAT likely to decline by 21% YoY to Rs363m.

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