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IDFC Infra Pulse - Order awards slow down; 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 fell 43.5% yoy to Rs172bn, given the election environment, much lower than past 12M average of Rs359bn. Tender announcements too slid 51.7% yoy to Rs515bn, given the higher base in PY. However, NHAI’s bid pipeline remained strong (as on 11 Dec 2018), with projects worth Rs1.1trn under various stages of bidding. We believe this blip in order awards, unless prolonged, will not hurt construction companies, as these companies are sitting on robust order backlogs (3-4x FY18 revenues). Traffic at major ports grew at 1.9% yoy to 57.8mt. The weak growth was led by 1.9% yoy de-growth in POL volumes even as coal and container volumes remained strong. We see Adani Ports as a key beneficiary of continued strong growth in container and coal cargo volumes given its diversified presence in cargo.
• Construction contract awards and tenders announced fell in Nov 2018: We attribute the 43.5% yoy de-growth in construction contract awards at Rs172bn in Nov 2018 (robust 65.6% yoy at Rs1.7trn on trailing six month (6M) basis) to weak awards in Transportation & Marine infra and building segments. The Railway & MRTS segments sustained strong order award momentum in Nov 2018, registering 420% yoy growth to Rs54bn. Tender announcements too fell 51.7% yoy to Rs515bn in Nov 2018 given high base in PY (13.5% yoy de-growth to Rs3.7trn on trailing 6M basis). Andhra Pradesh and Gujarat accounted for 19% and 13% of total tenders in Nov 2018, respectively.
• Subdued order awards in YTDFY19; bid pipeline remains strong: Awarding activity remained subdued with ~Rs525bn of highway projects being awarded in YTDFY19. Major awards came from MSRDC (Rs136bn), followed by MORTH & PWD (Rs107bn) and NHAI (Rs56bn). We gather NHAI is expected to award more road projects under EPC mode in FY19, largely due to lack of investments from road developers & banks under HAM model. NHAI’s bid project pipeline remains strong. As on 11 Dec 2018, 146 NHAI projects worth Rs1.1trn are under various stages of bidding. Of this, EPC projects comprised Rs729bn (65%) and HAM projects were worth Rs389bn (35%).
• Major ports saw strong container cargo volumes: Container volumes grew 8.2% yoy to 803K TEUs in Dec 2018, (6.5m TEUs YTDFY19, +8.4% yoy), led by pick-up in EXIM trade. JNPT reported robust 8.7% yoy growth in container volumes to 423K TEUs. Cargo volumes at major ports grew by only 1.9% yoy to 57.8mt led by 1.9% yoy decline in POL volumes (461mt, +4.9% yoy YTDFY19). Higher demand and constraints on domestic coal transportation led to 21.6% yoy growth in coal cargo volumes to 14.9mt. Container volumes on the west coast (including minor ports) posted 13.8% yoy growth (+12.7% yoy in FY18) in Q2FY19.
• Other sectors: Domestic air passenger traffic grew 13.0% yoy to 11.8m pax in Oct 2018 (+18.5% yoy YTDFY19). Conventional power generation grew 4.6% yoy to 110bn units during Nov 2018
• Key sector news

o  NHAI raising money via second package of TOT asset sale

o  National Mission for Clean Ganga clears 10 projects worth Rs15bn

o  Over 362 infra projects show cost overrun of Rs3.4trn