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IDFC Infra Pulse: Pace of order awards continue

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 contact awards remained strong and crossed Rs300bn mark consistently over last six months (Nov 2017-Apr 2018). Contract awards grew 20.8% yoy to Rs312bn in Apr 2018. Tender announcement grew 9.2% yoy to Rs564bn. As on 15 May 2018, National Highway Authority of India’s (NHAI) bid pipeline remained strong at 2,428km, with projects worth Rs466bn. Ministry of Road Transport and Highways (MORTH; including NHAI) is targeting to award 20,000km and construct 16,420km of highway projects in FY19. Major ports saw subdued total traffic growth of 1.8% yoy to 56.8mt, largely due to 26.2% yoy fall in iron ore volumes to 4mt. Coal cargo volumes continued its growth trajectory for the eighth consecutive month in Apr 2018 to 13.9mt, up 12.6% yoy, led by higher demand. A pick-up in EXIM trade aided 7.3% yoy growth in container traffic in Apr 2018 to 807K 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 volumes and superior coal cargo volumes, given the company’s diversified presence in cargo.

• Award of construction contracts remain buoyant: Construction contract awards at Rs312bn were up 20.8% yoy in Apr 2018 (Rs3.3trn, +40.5% yoy in FY18). On trailing-six-month basis, awards grew at robust 106% yoy to Rs2.4trn. L&T, Bajaj Electricals, BHEL and Reliance Infrastructure combined received more than 50% of the order awards in Apr 2018. The strong order award momentum from the power T&D segment sustained in Apr 2018 and grew 18.4% yoy to Rs80bn. Tender announcements in Apr 2018 grew at a moderate 9.2% yoy to Rs564bn. However, on a trailing six-month basis, tenders announced reported strong 16.9% yoy growth to Rs5.4trn. Maharashtra accounted for 26% of the total tenders announced in Apr 2018.
• Highway sector post 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. NHAI awarded 7,396km (+70.6% yoy) and constructed 4,000km (+52.2% yoy; 11km/day) of the total projects. While NHAI’s bid pipeline remains strong at 2,428km (Rs466bn), MORTH (including NHAI’s share) targets to award 20,000 km of projects in FY19. We estimate strong 8.8% yoy growth in traffic on key stretches in Q4FY18. Twelve infrastructure companies have submitted the technical bids for construction of Purvanchal Expressway in UP for 8 packages worth Rs122bn (341km) and expect to submit the financial bids in Jun 2018.
• Subdued cargo volume growth at major ports: In Apr 2018, cargo volumes at major ports grew at mere 1.8% yoy to 56.8mt (679mt, +4.8% yoy in FY18). Higher demand led to 12.6% yoy growth in coal cargo volumes to 13.9mt. Container volumes grew 7.3% yoy to 807K TEUs (9,135K TEUs in FY18, +8.1% yoy), led by a pick-up in EXIM trade. Container volumes at JNPT grew 3.8% yoy to 432K TEUs but fell 2.3% yoy to 128K TEUs at Chennai. In Q4FY18, container volumes on the west coast (including minor ports) grew 14.2% yoy (+13.1% yoy in FY18).  
• Other sectors: Domestic air passenger traffic grew 26% yoy to 11.5m pax in Apr 2018 (+18.7% yoy in FY18). Conventional power generation grew 0.3% yoy in Apr 2018 and overall power generation (including renewables) grew 2.2% yoy in Apr 2018, respectively.
• Key sector news

o     Loan pact of US$210m signed for Madhya Pradesh Rural Connectivity project.

o     World Bank to lend Rs61.3bn for MUTP-3.

o     Land acquisition for Nagpur-Mumbai Samruddhi corridor - 80% complete.

o     L&TIDPL transfers stakes of five subsidiaries to Indinfravit Trust.