Making financing infrastructure projects easier and cheaper has drawn more focus in this Budget than earlier.

The success of the Budget measures is yet to be gauged, but market reaction – which pulled most infra stocks down by 1 to 11 per cent – is rather unwarranted. At this point in the sector, any move that can ease funding is a welcome step.

Smoothening funding

India Infrastructure Finance Company (IIFCL) together with Asian Development Bank will offer a credit guarantee of a part of loans represented by bonds issued by infrastructure companies. This will help raise ratings on the bonds, giving access to a wider investor base, while also helping bring down interest rates.

The likes of Larsen & Toubro, IRB Infrastructure, IL&FS Transportation Networks, Punj Lloyd, Ramky Infra, Sadbhav Engineering, and GMR are among those executing large-sized projects and which have reasonable debt-equity ratios.

IIFCL will also get help in takeout financing and refinancing from Infrastructure Debt Funds (IDF). However, success under IDFs remains to be seen, since activity has been seen only recently on this front, while they were actually proposed two budgets ago. Tax-free bonds have been continued this Budget as well, which could deepen the funding pool.

Apart from addressing funding issues, Budget allocations towards the big sectors that find representation in the listed space were healthy. Allocation to road projects has risen 30 per cent, including rural road development. Encouragement of north-east road connectivity, two new major ports, allocations under JNNURM (urban development projects) and plans to integrate waterways, ports and roads being drawn will provide a boost to order books across the board.

Allocations step up

Companies such as Simplex Infra, MBL Infra, C&C Construction and Ashoka Buildcon could stand to benefit from their presence in the relatively less-crowded port construction and experience in executing projects in difficult terrain. Even so, translation into actual orders isn’t a given. In roads, for instance, awarded projects are just about one per cent of 2012-13 budget estimates so far.

Construction-focused companies such as Ahluwalia Contracts, ARSS Infra, J Kumar Infra Unity Infra and Pratibha Industries apart from majors such as L&T could also stand to benefit from the investment allowance on acquisition of plant and machinery that was announced in this budget.

Also proposed is the setting up of a road regulatory authority. With a good many projects facing problems with land acquisition, clearances and approvals, this one-stop shop approach could quicken pace of execution, thus bringing down costs and improving returns.

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