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IDFC Infra Pulse: India Infrastructure – firing on all cylinders

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.

Contract awards in construction continued to grow in Jan 2018 at 158% yoy to Rs314bn, post 49% yoy growth in Nov 2017 to Rs305bn and 175% yoy growth in Dec 2017 to Rs307bn. Tender announcements grew 4.6% yoy to Rs1.1trn. Projects awarded by NHAI picked up pace with 1,046km (Rs150bn) being awarded between Jan-Feb 2018 to the listed players within the infrastructure universe versus 422km (Rs72bn) awarded between Apr-Dec 2017. Bid pipeline from NHAI was the strongest at 7,768km (Rs1,416bn) and the highest so far. While awards in highway projects fell 48.7% yoy to 2,917km in 8mFY18, completion of projects saw a sharp 23% yoy growth at 4,944km (20km/day, 8mFY18). Total traffic at major ports grew 13% yoy to 61.6mt – the highest monthly volumes in last nine years - led by a pick-up in POL and coal cargo volumes. We believe the yoy fall in monthly coal (thermal + coking) cargo volumes has bottomed, led by higher demand, with Jan 2018 (+39.6% yoy to 15.2mt) being the fifth consecutive month of growth. Container traffic grew 6.5% yoy to 753K TEUs, led by a pick-up in EXIM trade. We expect construction companies focussed on the roads and urban infrastructure to benefit the most from the improvement in contract awards and strong bid pipeline. Adani Ports will be a key beneficiary of the strong rebound in EXIM trade and container volumes and superior coal cargo volumes, given its diversified cargo presence, in our view.

• Construction contract awards continue to improve; tender announcements strong: Contract awards in construction, which surged in Nov and Dec 2017, continued their upward move in Jan 2018 posting strong 158% yoy growth at Rs314bn (Rs2.6trn, +7.2% yoy TTM). Post weakness over last 20 months, on a trailing-six-months basis, awards improved at a robust 63.4% yoy to Rs1.5trn. Tender announcements grew 4.6% yoy to Rs1.1trn in Jan 2018, dominated by tenders from roads (58% share), followed by the irrigation (8% share) segment. On a trailing-six-month basis, tenders announced grew at a strong 16.4% yoy to Rs5.1trn. Maharashtra and Uttar Pradesh accounted for 20.3% and 14.9% of the total tender announcements in Jan 2018, respectively.
• Pick up in awards of highway projects; bid pipeline robust: During Apr-Dec 2017, NHAI awarded total projects worth 422km (Rs72bn) to listed entities with 1,046km (Rs150bn) of projects being awarded during Jan-Feb 2018, signifying strong improvement in awarding activity. NHAI bid pipeline was the strongest at 7,768km for projects worth Rs1,416bn. Awards in highway projects remained weak (fell 48.7% yoy to 2,917km in 8mFY18), but completion of projects continued to grow at a strong 23% yoy to 4,944km (20km/day, 8mFY18). Traffic on key stretches grew 8.4% yoy in Q3FY18, led by recovery in traffic growth, post the slowdown in Q2FY17 (due to GST implementation). In the FY19 Union Budget, the total outlay on roads and bridges jumped 10.6% yoy to Rs1.3trn (FY18 RE at Rs1.2trn).
• Major ports witnessed strong cargo volume growth: In Jan 2018, monthly cargo volumes at major ports were the highest in last nine years at 61.6mt, up 12.9% yoy (561mt, +4.6%yoy YTDFY18), led by a pick-up in POL and coal cargo volumes. The yoy declining trend in monthly thermal coal cargo volumes seems to have reversed, led by higher demand, with Jan 2018 (+34.9% yoy to 10.3mt) being the fourth consecutive month of growth. Container volumes at JNPT reported strong 13.6% yoy growth at 419K TEUs.  
• Other sectors: Domestic air passenger traffic grew 19.7% yoy to 11.5mn pax in Jan 2018 (+17.2% yoy YTDFY18). Conventional power generation grew 5.8%/4% yoy and overall power generation (including renewables) grew 7.2%/5.4% yoy in Jan 2018/YTDFY18, respectively.
• Key sector news

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