Indian Infrastructure Ship sinking
Almost all of India’s major consturction and infrastructure companies have seen losses in the current quarter and expected to be in the red for the rest of the year. India’s infrastructure sector which was the darling of investors in the boom period has become almost an untouchable industry in the last couple of years. The main reasons for their decline are:
a) High amounts of debt leading to massive interest outflows
b) Poor execution
c) Lack of fuel hurting the power plant developers
d) Poor management
e) Regulation issues particularly in PPP projects
f) Lack of planning
All the big names like GMR, GVK , Lanco, HCC have shown large losses and are set to sell assets to reduce their leverage. Most of these companies had floated SPVs for different capex heavy projects . These companies are now trying to sell these SPVs outright or stakes to reduce their debt position.
India’s Infrastructure Sector which was considered the ideal play on India’s fast growing GDP and its huge infrastructure requirements long commanded nosebleed valuations. While realty stocks which are closely related to the infra ones had long collapsed after the GFC in 2008, the infrastructure stocks had retained their preeminence in the stock market rally. However end 2010 and 2011 has seen a vicious change in their fortunes. Stocks like IVRCL, IRB, Punj Lloyd, L&T, Gammon etc have seen their stock prices nosedive. The stocks have corrected far more than the broader market which has itself fallen more than 15% in 2011. The problems related to the infrastructure stocks are varied and they have converged for investors to totally lose confidence in this sector something akin to the realty sector.
Airport operators and leading infra firms GVK and GMR have both posted losses, along with power and infra firm Lanco and EPC and infra player IVRCL. Only NCC posted profits. Many of the firms say they will continue to face such pressure, at least till the end of the financial year. Next two quarters will serve as a phase of consolidation. For those purely into infrastructure projects with accent on EPC, such as IVRCL, debt servicing has clipped its profitability.