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IDFC Infra Pulse - Order awards & tenders improve mom; Cargo volumes at major ports decline

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 flat yoy at Rs307bn, but were up 77.8% mom, led by strong rebound in orders from Railway & Metro rail, Power T&D and Water & Irrigation segments. Dec witnessed the highest monthly tender announcements in YTDFY19 at Rs824bn (down 7.4% yoy on high base), led by real estate and water supply tenders. Further, NHAI’s bid pipeline remained strong (as on 10 Jan 2019), with projects worth Rs1.2trn under various stages of bidding. We expect the sequential pick-up in order awards to sustain over the next couple of months before code of conduct for general elections kicks in, given the strong NHAI bid pipeline. Traffic at major ports de-grew 3.9% yoy to 57.4mt due to 8.1% yoy de-growth in POL volumes (likely due to lower product volumes) and flat coal volumes. Container volumes continued to be strong in Dec 2018.

• Construction contract awards and tenders improve sequentially in Dec 2018: Order awards remained flat yoy at Rs307bn, but were up 77.8% mom in Dec 2018 (robust 34.9% yoy at Rs1.7trn on trailing six month (6M) basis). Sequential improvement was led by strong rebound in Railway & Metro rail (up 197% mom to Rs62bn) and Power T&D (up 120% mom to Rs36bn) segments. Monthly tenders of Rs824bn were announced in Dec 2018 which was highest in YTDFY19, were led by real estate and water supply segments. Tender announcements in housing segment at Rs141bn was heartening given that it was highest monthly tendering in segment over last few years. These largely comprised of low cost housing and government housing tenders in Karnataka, Andhra Pradesh and Maharashtra.
• Subdued ordering from NHAI in YTDFY19; bid pipeline remains strong: NHAI has awarded only projects worth Rs74bn in YTDFY19. Total highway projects worth ~Rs564bn were awarded in YTDFY19 with major awards came from MSRDC (Rs136bn), followed by MORTH & PWD (Rs107bn). NHAI’s bid project pipeline remains strong with projects worth Rs1.2trn under various stages of bidding. Of this, EPC projects comprised Rs750bn (68%) and HAM projects were worth Rs453bn (32%).
• Major ports saw strong container traffic; total cargo volumes de-grew: Container volumes at major ports grew 8.3% yoy to 849K TEUs in Dec 2018, (7.3m TEUs YTDFY19, +8.3% yoy), led by continued growth in EXIM trade. JNPT reported robust 7% yoy growth in container volumes to 446K TEUs. However, total cargo volumes at major ports de-grew 3.9% yoy to 57.4mt, led by 8.1% yoy decline in POL volumes (likely due to lower product volumes). Container volumes on the west coast (including minor ports) are likely to grow 10.2% yoy (+12.7% yoy in FY18) in Q3FY19.

Other sectors: Domestic air passenger traffic grew 11.0% yoy to 11.6m pax in Nov 2018 (+17.5% yoy YTDFY19). Conventional power generation grew 3.6% yoy to 101bn units during Nov 2018.

Key sector news

o  NHAI likely to re-bid second package of Toll Operate Transfer (TOT)

o  NHAI is looking to raise Rs100bn via Bharatmala bonds