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IDFC Infra Pulse - Improved diversity in order awards; continued momentum in cargo and air traffic

Our monthly report on the infrastructure sector comprises of order inflow analysis, new project announcements, perspective on road sector, major port volume, air traffic movement, power generation trend and events/ news in the sector. The objective is to provide timely updates and a detailed perspective on these issues and other sector dynamics.

Construction contract awards remained strong and consistently crossed Rs300bn mark over last 9 months (Nov 2017-July 2018). Contract awards grew 205% yoy to Rs354bn in July 2018. Tender announcements remained strong posting 48.4% yoy growth to Rs719bn. As on 14 Aug 2018, National Highway Authority of India (NHAI) bid pipeline remained strong at 2,852km, with projects worth Rs564bn. Construction on the ambitious Delhi-Mumbai Expressway corridor is likely to commence in Dec 2018 at a cost of Rs1trn. For the first phase of the project connecting Mumbai to Vadodara, contracts worth Rs87.1bn have been awarded. Tenders for development of Vadodara-Delhi section of the Delhi-Mumbai Expressway corridor (Package 2-6) and Mumbai Nagpur Super Expressway (Package 14-16) are under various stages of bidding. Traffic at major ports saw moderate 4.8% yoy growth to 57.5mt. Growth trajectory in coal cargo volumes at major ports continued for the eleventh consecutive month in July 2018 (12.8mt, +25.5% yoy) on higher demand. Continued buoyancy in EXIM trade led to 11.3% yoy growth in container traffic in July 2018 to 836K TEUs. We believe construction companies focused on roads and urban infrastructure will benefit the most from improvement in contract awards and a strong bid pipeline. Adani Ports will be a key beneficiary of the strong rebound in container and improved coal cargo volumes, given the company’s diversified presence in cargo.

• Awards of construction contracts remain strong: Construction contract awards at Rs 354bn were up 205% yoy in July 2018 (robust 129% yoy to Rs2.6trn on trailing six month basis and Rs4.1trn, up +98.1% yoy on trailing 12 months (TTM) basis). The water & irrigation segment sustained strong order award momentum in July 2018, registering 8.9x yoy growth to Rs75bn. Tender announcements grew 48.4% yoy to Rs719bn in July 2018; the same grew 15.2% yoy to Rs4.2trn on a trailing six-month basis. Andhra Pradesh and Maharashtra accounted for 26.4% and 25.6% of the total tenders in July 2018, respectively.
• Highway sector posted strong performance in FY18; bid pipeline strong: A total of 9,829km (+19.4% yoy; 27km/day) and 17,055km (+4.8% yoy) of highway projects were constructed and awarded in FY18, respectively. Of this, NHAI awarded 7,396km (+70.6% yoy) and constructed 4,000km (+52.2% yoy; 11km/day) of the projects. While NHAI’s bid pipeline remains strong at 2,852km (Rs564bn), MORTH (including NHAI’s share) targets to award 20,000 km of projects in FY19. Tenders for development of Vadodara-Delhi section of the Mumbai-Delhi Expressway corridor (5 packages for 164.5km worth Rs45.6bn) are to be bid before 10 Oct 2018. Further, tenders for the balance packages of Mumbai-Nagpur Super Expressway (3 packages for 78.1km worth Rs65.3bn) are to be bid before 3 Sep 2018. 
• Major ports saw strong container cargo volumes: Container volumes grew 11.3% yoy to 836K TEUs in July 2018, (3,240K TEUs YTDFY19, +7.6% yoy), led by pick-up in EXIM trade. JNPT reported 6.7% yoy growth in container volumes to 429K TEUs with Chennai reporting 6% yoy growth to 141K TEUs. Cargo volumes at major ports grew 4.8% yoy to 57.5mt (231.5mt, +4.1% yoy YTDFY19). Higher demand and constraints on domestic coal transportation led to 25.5% yoy growth in coal cargo volumes to 12.8mt. Q1FY19 container volumes on west coast (including minor ports) grew 10% yoy (+12.7% yoy in FY18).  
• Other sectors: Domestic air passenger traffic grew 20.8% yoy to 11.6m pax in July 2018 (+20.3% yoy YTDFY19). While conventional power generation grew 4.3% yoy to 102.1billion units (BU) in July 2018, overall power generation (including renewables) is expected to register 6.1% yoy growth during the month.

Key sector news

o  Indian Railways to propose building East Coast freight corridor in 2019 at a cost of Rs560bn.

o  Govt may ease land acquisition threshold to 50% (80% now) to push execution of road projects.

o  Nod for 2,67,546 affordable houses for urban poor under PMAY(U).