High interest costs could potentially clip the overall profitability of infrastructure companies. Consequently some players in the sector are likely to see a relatively muted growth compared to corresponding quarter last year. High inflation levels and difficulties in execution for want of clearances, only add to this.
The Chief Financial Officer of NCC Ltd, Mr Y.D.Murthy, told Business Line that “there continues to be heavy interest burden on funds infrastructure companies have borrowed. This coupled with a few execution challenges, both client-related and also land acquisition, and the higher interest burden is a matter of concern for all infrastructure companies.”
“We expect margins of all infrastructure companies to get stretched. Even the order book growth is relatively slow. However, some infrastructure segments such as roads, already under development and buildings sector are fine,” Mr Murthy said.
The Chief Financial officer of IVRCL, Mr R.Balarami Reddy, said the interest burden has gone up by nearly 50 per cent over corresponding period last year from 8-8.5 per cent to 12.50 per cent. This alone is a major cause for considerable pressure on margins. Though there is some consolation in terms of escalation of costs for some of the contracts, this is a major concern for not just IVRCL but all infra firms.
The Chief Operating Officer of Lanco Infratech, Mr K. Naga Prasad, said the country's asset development process has been affected in some ways due to delays in securing clearances and also due to growing costs for companies, both from finance point of view and also from execution aspect. In case of new bids, infrastructure companies need to be extremely careful, he felt.
Broking and consultancy firm Karvy in its results preview stated that they expect second quarter earnings to be impacted due to high leverage and resulting interest cost. While some companies continue to face execution concerns, few others are better off owing to relatively stronger execution capability and diversified order book.