NEW DELHI: If the second quarter of this year saw infrastructure firms perform below expectations due to a slowdown in government-driven spending, the third quarter is unlikely to see much of an improvement. Sector analysts note that infrastructure sector earnings during the third quarter are likely to be unimpressive due to a lower-than-expected pick up in execution during the quarter.
Project execution has been impacted during October-December period this financial year due to “an extended monsoon and a construction ban in NCR”, say Centrum Research analysts Ashish Shah and Vaibhav Shah. Other factors like the continued suspension of work in Andhra Pradesh after the election of the Reddy government has affected major players like NCC, with its revenue expected to drop sharply by 39.6 per cent.
“Earnings for road focussed EPC firms are likely to remain impacted adversely by higher interest and depreciation costs and higher tax rate post discontinuation of 80IA benefit,” they added.
According to Motilal Oswal Institutional Equities, infra firms in its coverage universe are only expected to see earnings growth go into the negative even as revenue growth remains flat.
Year-on-year revenue growth for firms in the segment is likely to average only about 2 per cent while profit after tax is expected to fall by a whopping 16 per cent. Weak order inflows during the quarter also hold concerns, analysts note, even though order backlogs are healthy. “On an overall basis, new order wins for road players continued to remain weak in Q3 led by muted awarding from NHAI,” analysts note.
The weakness in infrastructure during the quarter has also had a spill-over effect on sectors like cement, which have been faced with tepid demand. While weakness in housing demand remained a major cause for low cement consumption,“additionally, demand from infra segment declined largely due to lack of funding, halting or temporary stoppage of state projects following a change in government post-state polls and liquidity issues,” Centrum’s report said.