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IDFC Infra Pulse - Stellar order award activity

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 grew at a robust 115% yoy to Rs808bn in Mar 2018. In FY18, order awards remained strong at Rs3.3trn, up 40.5% yoy and tender announcement grew 9.9% yoy to Rs9.1trn. Tender announcement remained weak and fell 16.6% yoy to Rs680bn in Mar 2018. In FY18, The Ministry of Road Transport and Highways (MORTH) showed the best performance in construction (9,829km, +19.4%yoy, 27km/day) and highway projects awards (17,055km, +4.8%yoy) compared to previous periods. NHAI too put up a remarkable performance with 7,396km (+70.8% yoy) awarded and 4,000km (11km/day, +52.2% yoy) constructed in FY18. NHAI’s bid pipeline continues to remain strong at 3,223km (Rs670bn) and the authority has also set a target of 3,000km to be awarded between Apr-May 2018. Traffic at major ports grew at a moderate 2.9% yoy to 62.7mt during Mar 2018, with FY18 growth at 4.8% yoy to 679mt. We believe the yoy fall in monthly coal cargo volumes (thermal + coking) has bottomed, fuelled by higher demand, as Mar 2018  was the seventh consecutive month of growth (+43.8% yoy to 13.9mt). Pick-up in EXIM trade aided 5.3% yoy growth in container traffic in Mar 2018 at 833K TEUs and 8.1% yoy growth in FY18 at 9,135K TEUs. We believe construction companies focused on roads and urban infrastructure will benefit the most from the improvement in contract awards and strong bid pipeline. Adani Ports will be the key beneficiary of the strong rebound in container volumes and superior coal cargo volumes, given its diversified presence in cargo.

• Record high construction contract awards in Mar 2018: Construction contract awards were strong in Mar 2018 at Rs808bn, up 115% yoy (Rs3.3trn, +40.5% yoy in FY18). On a trailing-six-months basis, awards improved at a robust 110.5%yoy to Rs2.2trn. More than half of the order awards in Mar 2018 were from the transportation segment at Rs408bn. L&T, Dilip Buildcon and BHEL on a combined basis received more than 50% of the order awards. Tender announcements in Mar 2018 fell 16.6% yoy to Rs680bn. However, on a trailing-six-month basis, tenders announced reported strong 20.3% yoy growth to Rs5.6trn. Maharashtra itself accounted for 25% of the total tenders announced in Mar 2018.
• Construction and awards in highway projects high; 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, of which NHAI awarded 7,396km (+70.8% yoy; 11km/day) and constructed 4,000km (+52.2%yoy) of these projects. While NHAI’s bid pipeline remains strong at 3,223km (Rs670bn), authority targets to award 3,000 km of projects between Apr-May 2018. In FY18, MORTH spent ~Rs1.2trn (all-time high; +44.4%yoy), which included Rs280bn (+65%yoy; Rs170bn in FY17) spent by NHAI towards acquisition of land. Traffic on key stretches is likely to remain strong and we estimate 7.3%yoy growth in Q4FY18.
• Major ports witness moderate growth in cargo volumes: In Mar 2018, cargo volumes at major ports grew 2.9% yoy to 62.7mt (679mt, +4.8% yoy in FY18). Higher demand arrested the yoy decline seen in monthly coal cargo volumes, as seen from +43.8% yoy growth in Mar 2018 at 13.9mt - the seventh consecutive month of growth. Container volumes at major ports grew 5.3% yoy to 833K TEUs. Container volumes at JNPT grew 4.3% yoy to 432K TEUs but fell 3.7% yoy to 131K TEUs at Chennai.  
• Other sectors: Domestic air passenger traffic grew 24.1% yoy to 10.7mn pax in Feb 2018 (+17.9% yoy YTDFY18). Conventional power generation grew 3.3%/3.9% yoy in Mar 2018/FY18 and overall power generation (including renewables) grew 4.8%/5.3% yoy in Mar 2018/FY18, respectively.
• Key sector news

o  Prime Minister launches infra projects worth over Rs96bn in Bihar

o  World Bank passes Rs27bn loan for Maharashtra to improve water harvesting structures

o  For FY19, MORTH sets highway awards target at 20,000km and construction target at 16,420km