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IDFC Infra Pulse - Slowdown in order awards; NHAI bid pipeline improves

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 for the first time in last 12 months and de-grew 30.3% yoy to Rs182bn, much lower than the trend of Rs300bn+ order awards witnessed each month over last 10 months. Tender announcements too slid 10.7% yoy to Rs648bn, but NHAI’s bid pipeline remained strong (as on 15 Oct 2018), with projects worth Rs864bn (Rs520bn under EPC mode and Rs344bn under HAM) under various stages of bidding. Traffic at major ports grew at a moderate 5.4% yoy to 54.9mt with continued strong growth in containers and coal cargo. In our view a drop in order awards, unless prolonged, will not hurt construction companies as these companies are sitting on robust order backlog (3-4x FY18 revenues). 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.

• Construction contract awards and tenders announced fall in Sep 2018: We attribute the 30.3% yoy de-growth in construction contract awards at Rs182bn in Sep 2018 (robust 100% yoy at Rs1.9trn on trailing six month (6M) basis) to weak awards in buildings, water & irrigation and defence segments. The Railway & MRTS segments sustained strong order award momentum in Sep 2018, registering 2372% yoy growth to Rs35bn. Tender announcements too fell 10.7% yoy to Rs648bn in Sep 2018 (5.8% yoy growth to Rs3.6trn on trailing 6M basis). Andhra Pradesh and Maharashtra accounted for 16% and 12% of the total tenders in Sep 2018, respectively.
• Subdued order awards in H1FY19; bid pipeline remains strong: Awarding activity remained subdued with ~Rs380bn of highway projects being awarded in H1FY19. Major awards came from MSRDC (Rs170bn), followed by MORTH & PWD (Rs61.8bn) and NHAI (Rs55.1bn). We gather NHAI is expected to award more road projects under the EPC mode in FY19, largely due to lack of investments from road developers and banks under the HAM model. NHAI’s bid project pipeline remains strong. As on 15 Oct 2018, 115 NHAI projects worth Rs864.1bn are under various stages of bidding. Of this, EPC projects comprised Rs520bn (60%) and HAM projects were worth Rs344bn (40%).
• Major ports saw strong container cargo volumes: Container volumes grew 13.1% yoy to 827K TEUs in Sep 2018, (4.9m TEUs YTDFY19, +7.8% yoy), led by pick-up in EXIM trade. JNPT reported robust 12.8% yoy growth in container volumes to 432K TEUs with Chennai reporting 17.1% yoy growth to 151K TEUs. Cargo volumes at major ports grew 5.4% yoy to 54.9mt (343mt, +5.2% yoy YTDFY19). Higher demand and constraints on domestic coal transportation led to 7.8% yoy growth in coal cargo volumes to 11.3mt. H1FY19 container volumes on the west coast (including minor ports) are likely to have posted 13.9% yoy growth (+12.7% yoy in FY18).    
• Other sectors: Domestic air passenger traffic grew 17.2% yoy to 11.4m pax in Sep 2018 (+19.7% yoy YTDFY19). While conventional power generation grew 5.4% yoy to 108bn units during the period, overall power generation (including renewables) is expected to have registered 7.5% yoy growth during the month.

Key sector news

o        NHAI to award more projects in EPC mode in FY19

o        India to get 30 new airports in next 15 months

o        NABARD sanctions Rs656bn loans for 93 irrigation projects