IGI Logo

Execution is likely to remain strong for diversified EPC and building construction companies while remaining moderate-to-weak for highway companies. We expect 15%?60% YoY execution growth for most companies with KNR being exception with lower growth and GRIL likely to post de-growth. EBITDA margins for highway focussed companies are likely to remain flat or decline YoY due to one-offs like early completion bonus in PY. Margins for diversified EPC companies are likely to witness improvement due to benefit of lower commodity costs. Working capital/debt levels are likely to increase QoQ due to seasonality. Ordering was mixed in 1QFY24 with diversified companies like L&T, NCC, ACIL and KPIL doing well while PNC, HG and KNR receiving nil inflows. While highway awarding has been muted in 1QFY24, bid pipeline remains strong at INR 824bn. We expect highway awarding to pick-up in 2QFY24 before slowing down in 4QFY24 ahead of upcoming national elections. Top picks: PNC Infratech, Kalpataru Projects International and HG Infra.

* Execution to be stronger for diversified EPC/building companies: Execution is likely to be strong for the diversified EPC players and the building companies given their robust order backlogs. For highway companies, we expect the revenue growth to be moderate due to their moderate order backlogs (executable backlog moderate-to-weak at start of the quarter in most cases). We expect PSP/KPIL/KEC to post robust growth of 59%/27%/19% YoY in 1QFY24 led by strong executable order backlogs. On the other hand, GR Infra’s revenue is expected to decline by 13% YoY due to weak executable order backlog and high base (PY included early completion bonus of INR 1.32bn). PNC’s revenue growth to remain constrained at 5.2%YoY on high base (early completion bonus of INR 370mn and short term toll collection revenue of INR 1bn in 1QFY23).

* Margins to remain stable; debt levels to rise QoQ due to seasonality: EBITDA margins are likely to remain stable or improve on a QoQ basis across companies. KPIL/KEC are likely to see QoQ EBITDA margin expansion of 90 bps/50 bps to 8.0%/5.6% in 1QFY24. Working capital/debt levels are likely to be increase for the coverage universe due to seasonality (4Q debt levels are generally lower led by year-end payments).

* Order inflows mixed bag ? diversified EPC companies received healthy inflows: Tendering activity remained strong at INR 3.5trln (up 35% YoY/ up 2% QoQ) driven by Water Sewerage/Railways/Highways. Order awards grew by 12% YoY to INR 1.8trln in 1QFY24. Order inflow for our coverage universe has been mixed with PNC/HG/KNR not receiving any inflows in 1QFY24. Notably, ACIL/NCC/KPIL reported strong order inflows of INR 42bn/INR 75bn/INR 51.2bn in 1QFY24.

* Healthy NH bid pipeline remains a bright spot; awarding to pick-up in 2Q: NH bid pipeline remains strong at INR 824bn vs. INR 203bn in Jun’22. Of this, NHAI’s bid pipeline stands at INR 665bn with HAM/EPC projects accounting for 78%/22% share. NH awarding usually picks up pace in 2H (Oct-March period). However, FY24 awarding is likely to be front-ended due to the expected slowdown in 4Q ahead of national elections in May’24.

* L&T 1QFY24 preview: Expect strong execution along with moderate margin recovery: We expect L&T’s P&M (Projects and Manufacturing) order inflows to grow by 7.6% YoY to INR 302bn on the back of order announcements of c.INR 163bn (average of the range). Consolidated order inflows are likely to grow by 5.7% YoY to INR 442bn. We expect a 14.4%/18.6% YoY growth in P&M revenue/EBITDA with P&M margins recovering by 30bps YoY to 8.5% (down 70bps QoQ). Consolidated revenue/EBITDA are likely to grow by 13.6%/16.5% YoY to INR 407bn/INR 46bn, with EBITDA margin at 11.3% (up 30 bps YoY/down 40 bps QoQ). We expect PAT to grow sharply by 26.5% YoY to INR 21.5bn aided by margin expansion and lower depreciation expenses (down 9% YoY on high base).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer