STOCK WATCH. More investments will help sustain the topline for infrastructure companies

For the six months ending September 2016, revenue growth for some of the top infrastructure companies, both roads and ports appeared mixed. For instance, in case of road players, IRB Infrastructure Developers, Gayathri Projects and Dilip Buildcon showed a topline growth of 24, 8 and 12 per cent respectively. But, other players — Ashoka Buildcon, Sadbhav Engineering and PNC Infratech — witnessed a revenue drop of 5, 10 and 14 per cent respectively.

Similarly, Adani Ports and Special Economic Zone showed an impressive 14 per cent growth in revenue aided by the opening of new terminal in Katupalli port in Ennore, Tamil Nadu. This is in contrast to Gujarat Pipavav Port which saw a mere 2 per cent increase in revenue. Lower realisations were mainly due to increasing raw material prices and crude oil bottoming out from the lows reached towards the end of February 2016. Till the end of December 2016, a total of 5,700 km road projects were awarded — predominantly through construction contract. Also, banks continue to reel under non-performing assets and the legacy of stressed road projects continue to haunt lenders. For instance, of the 36 projects (around 2,000 km) bid out through Hybrid Annuity Model (HAM) in this fiscal, nearly 75 per cent have not reached financial closure as of December 2016. In case of ports, lack of export growth continues to weaken revenue.

Global demand uncertainty and a series of political events saw all the stocks take a beating last year. Except Hindustan Construction Company, KNR Construction and Adani Ports & Special Economic Zone shares which increased 110, 78 and 30 per cent respectively last year, most others ended flat or took a beating. Depressed global growth, lack of encouragement from the export market and a series of surprising political events played havoc on the road and port stocks. Shares of Ashoka Buildcon, Sadbhav Engineering and Gujarat Pipavav Port ended 12, 11 and 13 per cent lower respectively compared to a year earlier.

The aggregate revenue dropped 10 per cent while the profit after tax fell 26 per cent for listed road construction companies. With interest rate environment in the downward trajectory, infrastructure players should get some respite. However, the success of increasing investments in road projects depends on how well the Investment Trust (Inv-IT) and Toll Operate Transfer models are accepted among investors. Besides, the Centre’s ability to attract investors for domestic coastal trade through Sagarmala project will play a vital role in encouraging further investments in ports.