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IDFC Infra Pulse - Steady pace of order awards

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 have remained strong and consistently crossed Rs300bn mark over last 7 months (Nov 2017-May 2018). Contract awards grew 103% yoy to Rs412bn in May 2018 with tender announcements registering 23.2% yoy growth to Rs581bn. As on 22 June 2018, National Highway Authority of India’s (NHAI) bid pipeline remained strong at 3,110km with projects worth Rs577bn. 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 moderate growth of 3% yoy in total traffic to 59.5mt, largely due to 18.6% yoy fall in iron ore volumes to 3.7mt. Growth trajectory in coal cargo volumes continued for the ninth consecutive month in May 2018 to 14.3mt, up 9.1% yoy, led by higher demand. Continued buoyancy in EXIM trade led to 4.6% yoy growth in container traffic in May 2018 to 790K TEUs, even as container volume growth was a mere 0.5%yoy at JNPT (on a high pre-GST base). 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 improved coal cargo volumes, given the company’s diversified presence in cargo.

• Award of construction contracts remains buoyant: Construction contract awards at Rs412bn were up 103% yoy in May 2018 (Rs3.6trn, +39.3% yoy on trailing 12 months (TTM) basis). On trailing six month basis, awards saw robust 116% yoy growth to Rs2.5trn. L&T, Reliance Infrastructure, NBCC and KNR Constructions combined received more than 70% of the order awards in May 2018. The strong order award momentum from the water & irrigation segment sustained in May 2018 registering 80.7% yoy growth to Rs77bn. Tender announcements posted 23.2% yoy growth to Rs581bn in May 2018 and 13.3% yoy growth to Rs5.0trn on trailing six-month basis. Andhra Pradesh and Maharashtra accounted for 16.2% and 15.3% of the total tenders announced in May 2018, respectively.
• Highway sector posted 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 3,110km (Rs577bn), MORTH (including NHAI’s share) targets to award 20,000 km of projects in FY19. Several quarters of robust diesel consumption growth has shown some weakness over last two months (+2.7%/+0.3% in Apr/May 2018, respectively), likely due to steep rise in diesel prices during this period. As a result, we could see a moderating effect on road traffic growth on BOT assets. Further, MSRDC has declared the lowest bidder for 13 out of 16 packages of Mumbai Nagpur Super Expressway with Megha Engineering emerging the winner with the highest number of wins (2 packages).
• Moderate cargo volume growth at major ports: In May 2018, cargo volumes at major ports reported mere 3% yoy growth at 59.5mt (116.3mt, +2.4% yoy YTDFY19). Higher demand led to 9.1% yoy growth in coal cargo volumes to 14.3mt. Container volumes grew 4.6% yoy to 790K TEUs (1,597K TEUs YTDFY19, +6% yoy), led by pick-up in EXIM trade. JNPT reported muted container volume growth of 0.5% yoy to 407K TEUs with Chennai registering robust 11.1% yoy growth to 140K TEUs. In Q4FY18, container volumes on the west coast (including minor ports) posted 14.7% yoy growth (+13.3% yoy in FY18).  
• Other sectors: Domestic air passenger traffic growth moderated at 16.5% yoy to 11.9m pax in May 2018 (+21% yoy YTDFY19). While conventional power generation grew 3.1% yoy in May 2018, overall power generation (including renewables) is likely to show 4.7% yoy growth in May 2018.

Key sector news

o  MORTH has Identified 300 ongoing national highway projects to be completed by March 2019.

o  Around 80% of land has been acquired for bullet-train project between Mumbai-Ahmedabad.

o  Central government inks loan pact with World Bank for UD$500m to finance PMGSY projects.