Indian Infrastructure Industry – The Road Ahead

Introduction -:
The Indian infrastructure industry which contributes 26.68 % of the countries
total industrial output grew by 7.1 % year-on-year(Y-O-Y) in January 2011 on
account of the healthy growth in the Road Construction Business and increase in
the production of Crude Oil and Petroleum Refinery Products and Electricity.
There has also been government encouragement towards this sector which is
likely to rise as mentioned by the planers of the Nation.

The investment in infrastructure is likely to rise from 7.55% (of GDP) during the
11th Five Year Plan (2007-12) to a staggering 9.95% (of GDP) during the 12th Five
Year Plan (2012-17). This means it has to be around US $ 1,025 Billion in order to
achieve the 9.95 % mark. As per the Planning Commission 50% of which has to be
from the Private Sector which means that the Private Sector Investment has to
increase from US $ 262 Billion to US $ 409.92 Billion at 2006-2007 Prices. This
means an increase of 9.34% per year in real terms.

As per the Union Budget 2011-2012, The South Block has allocated US $ 48.78
Billion in infrastructure a 23.3% increase from 2010-11. These figures together
indicate the emphasis given by the government towards infrastructure
development to change the face of growing India.

All these Macro indicators indicate the immense growth potential in the Indian
Infrastructure Sector and the Great opportunity for the Private Players operating
in this Industry.
Investments -:
Looking at the amazing growth opportunities in the Indian infrastructure industry
the big players have already started to cap on its growth there are various MF’s
and Banks either holding Investments or are planning to tap on the Growth
Opportunities in this sector.

Some of them are -:

 Kotak Mahindra Group plans to launch a US$ 300 million PE fund. The fund
will raise capital from domestic and international investors alike for
investing in infrastructure projects in India. Sumitomo Mitsui Banking
Corporation (SMBC) and Brookfield Asset Management will participate as
cornerstone investors or significant early investors. The three entities—
Kotak, SMBC and Brookfield—will contribute up to 22.5 per cent of the
fund’s capital.
 UK’s leading private equity player 3i plans to launch its US$ 3 billion
infrastructure fund for India in 2011.
 Morgan Stanley’s Infrastructure fund is to invest US $ 200 Million in ISLOX
Corsan’s Indian arm which is in road development. And has projects from
NHAI.
 JP Morgan Equity fund bought 10 % Stake in NICE’S infrastructure project to
build a corridor linking Bangalore and Mysore. The equity fund invested Rs
500 Cr to buy 40 year long project.
 The Asian Development Bank (ADB) has approved a Loan of US$ 200 million
to the Assam Power Sector Enhancement Investment Program.

This peace of information clearly indicates the tremendous Growth Potential in

Infra and the Markets Trust on the Sector.
 SCRIPT STUDY

After looking at the infrastructure industry on a whole lets now look at some
Scripts of the infrastructure industry which can be the perfect instruments for the
retail investors of taping the immense Growth Opportunities in the Sector.

The 4 most promising Scripts of the Sector are -:

1) Patel Engineering,
2) MBL Infra,
3) IVRCL Infra,
4) Lanco Infra.

Statistical Comparison

Lets begin our comparison by looking at the major macro facts of

these companies and giving a Good look at the Key facts of these
companies March 2010 Year End results and then Comparing these
Key ratios and Variables of each of these companies with the others.
For this we have taken the financial data from the March 2010 year
end results and compared it with each other.
 MBL Infra Patel Eng IVRCL Infra Lanco Infra
Market Cap 329.35 1195.79 2256.23 10136.86
(Rs Cr)
EPS 19.5 18.74 2.63 2.02
P/E 6.08 10.48 12.66 27.70
Sales(Rs Cr) 628.88 2,027.94 5,508.26 5,886.70
PAT(Rs Cr) 34.16 130.85 70.21 486.38
ROCE 20.54 11.77 18.64 15.57
ROA 126.88 184.16 69.41 12.82
Debt/Equity 0.86 1.24 0.87 0.89
OPM% 14.09 18.64 11.92 14.71
NPM% 5.42 6.39 1.26 8.1
Interest 3.63 2.46 3.34 4.64
Coverage

By this analysis we come to the conclusion that MBL Infra is the pick
among these companies with its Market Capital of 329.35 and it’s Sales
at Rs 628.88 Cr and it’s PAT at Rs 34.16 Cr. It has an Interest Coverage
Ratio of 3.63 and in these times when the interest payments are
showing serious threats to the infrastructure industry a good Interest
Coverage Ratio added with a healthy D/E at 0.86 shows sings of stable
Script. It also has good profit Margins with its NPM at 5.42%. All these
factors coupled with its low Market Cap shows the tremendous Growth
Opportunity in this Company.
 All-round Comparison

The Numbers though being one of the strongest indicators of a Scripts

performance do not give the complete picture there are many other factors other
than these which should be taken in to consideration before investing into any
Script. Like the Order Book of the Company, it’s Expansion Plans, its reputation in
the market, main clients. Etc.

MBL Infra -: It is a company with just the Market Cap of 329.35 and its Order
Book stands at Rs 1600 Cr as of now and is expected to be Rs 2000 Cr by the end
of FY11 which is a huge figure with just the Market Cap 329.35. MBL infra has a
good reputation in the market for timely completion of projects and quality of its
work which will be useful for it to get more orders in the Future. It is presently
working on 14 Projects Simultaneously. There is a lot of Growth Opportunity in
the Script due to its Great Performance and presently low Market Cap. All these
factors make this Script an Exciting BUY with the both long and short term gains.
Its high NPM% at 5.42% is going to be a major Plus for the company going
forward.

Patel Engineering -: It is a promising company with the Market Cap of 1195.79.

Its Order Book stands at Rs 10,000 Cr and lowest bids worth around Rs 1000 Cr
that is quite a healthy figure taken into consideration its present Market Cap. But
its recent incident with the NHAI of Incorrect Bidding and the major irrigation and
hydro power projects being held up due to political unrest in Andhra Pradesh has
harmed its reputation in the market. There are also concerns of Patel’s depletion
of orders in its CORE business and going in power generation and construction. So
the near future looks dizzy for Patel engineering as even there international
Projects will face delays due to Snowfall and Rainfall. The companies increasing
interest cost is also an area of concern and the companies D/E Ratio was 1.24 % at
March-10 end which is problematic figure.
IVRCL Infra -: IVRCL is a major engineering and procurement company with a
handsome Market Cap of Rs 2256.43 Cr and has commercial operations since
1990. BUT presently they have not been performing very well at both the Street
and even in operations. There has been a constant decline in the Net Profit even
after having good revenue figures. The main Profit Eater has been there interest
payments as there has been an increasing debt burden there operations, the Net
Debt at the end of December Quarter was Rs 2,200 Cr. There NPM% is one of the
lowest in the industry at 1.26%. There Receivables from Govt. clients mainly in
Andhra Pradesh remain high resulting in an increase in the need of working
capital which further increases the need of more debt. Though IVRCL has a Robust
Order Book of Rs 24,200 Cr there low Profit Margins and high Interest payments
still threaten the Script’s future performance on the Street.

Lanco Infra -: Lanco is a major infrastructure company having commercial

operations since 1993 and as of now has a proud Market Cap of Rs 10136.86 Cr.
Having its CORE operations in EPC. The 3rd Quarter results have been below
estimates mainly due to lackluster performance in the power division. Though the
Net Profit for 3rd Quarter has been up 54 % but this was mainly due to the change
in the method of Depreciation from Written Down Value Method (WDV) to
Straight Line Method (SLM). The EPC sector has shown good growth but the major
projects in that sector are Internal (Udupi and Anpara) which are nearing
completion. The company has also recently bagged some external projects
including an EPC contract Moserbaer’s power project worth Rs 4,100 Cr and a
BOT National Highway Project. This with the companies strong Order Book makes
this Script a good Long Term BUY.
 CONCLUSION

After this Comparison we can come to the conclusion that the all these 4 Scripts
have tremendous growth opportunities. But the pick among these companies is
MBL Infra though its is comparatively a smaller company than its peers presently
but it has all the makings of an infrastructure giant. Its reputation in the market is
Excellent which is rightly earned by the Record of never faulting on the timely
and qualitative delivery of any of its Projects. The key financials too show the
tremendous Potential in this Firm which should be taped on be the Investors.

Even Lanco Infra proves to be a great Long Term BUY and it already being an
infrastructure Major is a Safe Investment and is expected to give quality returns
over the Long Run to its investors.