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IDFC Infra Pulse - Order awards gather momentum; NHAI bid pipeline remains strong

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 regained growth momentum, posting 144.9% yoy growth (albeit on low base; 89% on YTDFY19 basis) to Rs400bn, backed by robust growth in transportation & marine infra awards in Oct 2018 (up 12.3x yoy to Rs173bn). While tender announcements slid 4.4% yoy to Rs762bn, NHAI’s bid pipeline remained strong (as on 12 Nov 2018), with projects worth Rs956bn under various stages of bidding (Rs618bn under EPC mode and Rs338bn under HAM). Traffic at major ports grew at a moderate 6.4% yoy to 60.1mt with continued strong growth in containers and coal cargo. In our view, recent pick-up in order awards bodes well for construction companies. We see Adani Ports as a key beneficiary of the strong rebound in container and improved coal cargo volumes, given the company’s diversified presence in cargo.
• Strong rebound in Oct 2018 construction contract awards: We attribute the 144.9% yoy growth in construction contract awards to Rs400bn in Oct 2018 (robust 109% yoy at Rs2.1trn on trailing six month (6M) basis) to strong awards in transportation and marine infra and Railways & MRTS segments. Tender announcements slid 4.4% yoy to Rs762bn in Oct 2018 (2% yoy growth to Rs3.8trn on trailing 6M basis). Madhya Pradesh and Andhra Pradesh accounted for 20% and 12% of total tenders in Oct 2018, respectively.
• Road order awards see sharp pick up in Oct 2018: Awarding activity improved drastically with ~Rs639bn of road projects being awarded YTDFY19. Major awards came from MSRDC (Rs183bn – Mumbai-Nagpur Super expressway), followed by MORTH & PWD (Rs107bn), MCGM (Rs96bn) and NHAI (Rs56bn). NHAI’s bid project pipeline remained strong. As on 12 Nov 2018, 125 NHAI projects worth Rs956bn were under various stages of bidding. Of this, EPC projects comprised Rs618bn (65% of total) and HAM projects were worth Rs338bn (35%).
• Major ports saw strong container cargo volumes: Container volumes grew 12.6% yoy to 818K TEUs in Oct 2018 (5.7m TEUs YTDFY19, +8.4% yoy), led by pick-up in EXIM trade. JNPT reported robust 10.2% yoy growth in container volumes to 422K TEUs with Chennai reporting 18.5% yoy growth to 141K TEUs. Cargo volumes at major ports grew 6.4% yoy to 60.1mt (403mt, +5.3% yoy YTDFY19). Higher demand and constraints on domestic coal transportation led to 24.5% yoy growth in coal cargo volumes to 14.9mt. Q2FY19 container volumes on the west coast (including minor ports) posted 13.8% yoy growth (+11.9% yoy in H1FY19).   
• Other sectors: Domestic air passenger traffic grew 18.9% yoy to 11.4m pax in Sep 2018 (+19.6% yoy YTDFY19). While conventional power generation grew 10.6% yoy to 113bn units during the period, overall power generation (including renewables) is expected to have registered 10.7% yoy growth during the Oct 2018.
• Key sector news

o Indian Railways to kick start revamp of 19 stations

o The Union Cabinet gives a nod to lease out six airports of AAI

o Over 357 infra projects show cost overrun of Rs3.4trn