Roads and Railways boost awards; tenders up marginally Overall tendering grew 5% YoY during H1FY22 Awarding activity grew at a 2-year CAGR of 22% in H1FY22 Infrastructure credit near all-time highs

Roads and Railways boost awards

As per a research report released by Emkay Global Financial Services, the Infra project’s award tendering activity picked up in Q2FY22 with 22% YoY growth. Road tenders continued to drive the bulk of the activity in this space (31% of H1FY22). H1FY22 awarding activity has gradually surpassed activity reported in H1FY20/21, delivering a 2-year CAGR of 22% the Central government achieved 31% of its annual budget target with an outflow of ~₹1.71 lk cr (up 28% YoY).

Traction in Central government spending remained robust, with a 12% CAGR in outflows in the last four years. The state government spending (top 15 states) touched ~₹1 lk cr (up 70% YoY) during the Apr-Aug’21 period. The Industrial Credit growth stood at 1.5% YoY as of Aug’21, while infrastructure credit grew 6%.

Tendering Activity
After a muted Q1FY22 (down 13% YoY), tendering picked up in Q2FY22 with 22% YoY growth. Overall tendering grew 5% YoY during H1FY22. Roads, Power Distribution and Power Equipment sectors saw strong growth during the quarter, while Real Estate and Water saw a decline in tendering.

Road tenders continued to drive the bulk of the activity in this space (31% of H1FY22), followed by Water Supply and Railways, which contributed 8-11%. During the quarter, a good number of orders were tendered by Bharat Broadband Network Ltd.

On a TTM basis, tendering stood at ~₹8 lk cr, with Road accounting for ~40% and Water & Irrigation accounting for ~20% of tenders.

Awarding Activity
H1FY22 awarding activity has gradually surpassed activity reported in H1FY20/21, delivering a 2-year CAGR of 22%. The Road sector remained the strongest driver, followed by Railways and Water Supply. Real Estate and Irrigation, on the other hand, were down.

Excluding Roads, the 2-year CAGR stood at 7%, clearly highlighting the significance of the sector in the overall scheme of things. Awarding activity grew 27% YoY and 68% QoQ in Q2FY22, led by Roads, Railways, Water Supply and Power Equipment.

Roads and Railways boost awards

Central & State Capex, Industrial Credit
For the Apr-Aug’21 period, the Central government achieved 31% of its annual budget target with an outflow of ~₹1.71 lk cr (up 28% YoY). Roads, Railways, Defence and Housing sectors, which generally account for ~70% of overall capex, saw 44% YoY growth.

Traction in Central government spending remains robust, with a 12% CAGR in outflows in the last four years. The Ministry of Roads has outpaced last year’s spending, up 123% YoY.

Additionally, state government spending (top 15 states) touched ~₹1lk cr (up 70% YoY) during the Apr-Aug’21 period and was ahead of last year’s spending (23% of BE has been achieved vs. 18% YoY). State capex recorded a 2-year CAGR of ~3%. During the first two months of Q2FY22, state capex grew 26% YoY. On a combined basis (Central + States), capex growth stood at ~42% YoY with a 2-year CAGR of 8%.

Roads and Railways boost awards

Infrastructure credit near all-time highs
Industrial credit was up 1.5% as of Aug’21 at ₹28.19 lk cr. Although the absolute value has largely grown over the last few years, industrial credit as % of total non-food credit has declined from a high of 46% in FY13 to 26.04% as of Aug’21, and stands at a 10-year low currently.

Infrastructure, a key sub segment, currently has an outstanding credit of ₹10.85 lk cr and registered 6% growth as of Aug’21. It is important to note that at ~₹10.8 lk cr as of Aug’21, outstanding infrastructure credit has gradually risen and stands near an all-time high, mainly led by a healthy pace of lending to the road sector, and has been trending in such narrow range for the last 12-15 months.

Emkay Global’s top picks in the sector are L&T (TP ₹2,000), Kalpataru Transmission (TP ₹565), HG Infra (TP ₹800) and KEC International (TP ₹490), considering their superior execution capabilities, existing order backlog, and relative valuations.

Some companies, like Siemens (Under Review) and JMC Projects (Not Rated), saw strong order inflows. Siemens had an inflow of ₹4,300 cr vs a ₹3,000 cr run rate, increasing the order book to an all-time high of ~₹14,300 cr at the end of Jun’21. JMC received ~₹8000 cr in inflows during H1FY22, up 43% YoY.

About Emkay Global Financial Services Limited
Emkay Global Financial Services Ltd., headquartered in Mumbai, India, is an integrated securities firm offering a wide range of investment avenues including investment banking, institutional broking, private wealth management, and financial products distribution. Its institutional broking division services clients across all-important global geographies and its research have received recognition from important bodies including Thomson Reuters, Asiamoney, The Wall Street Journal amongst others, over the years.
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