prasad vidolkar

8/7/2019 prasad vidolkar

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Construction sector

Introduction:

Indian construction sector consist of Road, Railways, Airport, Power, & Urban Infrastructure.

Infrastructure development is the most crucial factor for India's economic and social

development. If we are talking about a double digit India's GDP growth for next 10-15 years

we have to invest in the infrastructure development to achieve and sustain this growth. India

has the necessary human and natural resources for becoming world's leading economy but

without infrastructure these assets cannot be adequately utilized.

This case will focus on the fundamentals of the companies in construction sector and the

technical analysis of the same. It is important for investors to study this sector, as Central and

State Governments are realizing the need of good infrastructure. The sector has attracted

significant investment during the eleventh Five Year Plan of 2007-12. The required

information for the analysis of the sector has taken from the company web sides and from

various other web sites which are mentioned at respective places.

Economy analysis for Construction sector:

The Indian economy returned to strong growth level in the first quarter of FY 2009-10 and

continued the strong momentum with the real GDP rising by 8.6% y-o-y in the Jan-March

quarter. Today, India is the second fastest growing economy in the world. The Indian

Construction industry is an integral part of the economy and a conduit for a substantial Part of

its development investment, is poised for growth on account of industrialization,

urbanization, economic development and people's rising expectations for improved quality of

living. In India, construction is the second largest economic activity after agriculture.

Construction accounts for nearly 65 per cent of the total investment in infrastructure and is

expected to be the biggest beneficiary of the surge in infrastructure investment. Indiangovernment has allowed 100% FDI in construction sector.

The rising population requires large amount of public infrastructure like Roads, Airports,

railway station etc. Again the increase in imports and Exports requires highly equipped ports.

Industry Analysis for Construction sector:

Industrial sensitivity: The Construction industry was heavily dependent upon the

government spending for major subunit such as Airport, Roads, Ports, power etc, but because

of the Public Private Partnership (PPP) the government burden is reduced. Most companies

in construction sector are into the development of Roads, Airports, Power plants, Ports and

Urban Infrastructure. We will look into two main infrastructure, Road development and

Power generation in this case to study the opportunities for the construction companies in

field of development of primary infrastructure of a country.


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Roads:

Indian road network of 33 lakh Km. is

second largest in the world and consists of,

about 65% of freight and 80% passenger

traffic is carried by the roads. National

Highways constitute only about 2% of the

road network but carry about 40% of the

total road traffic. Number of vehicles has

been growing at an average pace of 10.16%

per annum over the last five years.

National Highways Authority of India

(NHAI) is mandated to implement National

Highways Development Project (NHDP) which is Indias largest ever highway project. The

government has taken policy initiatives to attract private developers and to do 20 km a day.

The Governments, through Public Private Partnership is enthusiastic about investing in road

and highway projects. The actual investment is much below the target. Despite this under

achievement, the road sector saw a five-fold jump in highway project disbursals in FY 2009-

10 compared with FY 2008-09. Upto February, NHAI awarded 36 projects of 3,166 km

against 8 projects spanning 643 km in FY 2008-09.

NHAI (National Highways Authority India) proposes to finance its projects by a host of

financing mechanisms. Some of them are as follows through budgetary allocations from the

Government of India. Cess, Loan assistance from international funding agencies, Market

borrowing, Private sector participation.

Power Generation

Installed Power Generation Capacity by Sector and Fuel The following table shows summary

of Indias installed power generation capacity as of March 31, 2010 sector wise and fuel wise

( Source: CEA, March2010)

Installed Power generation Capacity (Fig. In MW)

Fuel Sector

Central State Private Total % to Total

Coal 31,165 44,977 8,056 84,198 53%

Gas 6,702 4,046 6,308 17,056 11%

Nuclear 4,560 - - 4,560 3%

Hydro 8,565 27,065 1,233 36,863 23%

Others - 3,304 131,417 16,721 10%

Total 50,993 79,392 29,014 159,398 100%

% To Total 32% 50% 18% 100%

0%

2%

4%

14%

80%

KMs

Expressways

NationalHighways

State

Highways

Major District

Roads


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The Indian power sector has historically been characterized by demand-supply gap which has

been increasing over the years. In FY09, peak energy deficit was at 12%. This figure for 2010

has infact increased to 13.3% as per CEAs provisional numbers. Indias peak power shortage

is projected to further rise in coming years.

With the Indian economy on a high growth trajectory, bridging demand-supply gap is going

to be a serious challenge in coming years. The National Electricity Policy (NEP), 2005

recognizes electricity as a basic human need and targets a rise in per capita availability to

1,000 units per person by the end of 2012. Per Capita power consumption has gone up from

567 units in 2003 to 704 unit in 2008. To fulfil the objectives of the NEP, a capacity addition

of 78,700 MW is envisaged during the Eleventh Five Year Plan. The power sector is

expected to grow at 9.5 per cent per annum. In power sector, the year 2009-10 accounted for

the highest capacity addition, i.e. 9,585 MW in a single year in the last 60 years. Altogether

in the 11th five-year plan 62,302 MW capacities are likely to be added in the power sector, as

against the target of 78,700 MW. As stated by Honble Minister of Power, Mr. Sushil Kumar

Shinde, while addressing the Construction Summit 2010, the government is now planning to

set the target of achieving 1,00,000 MW capacity addition in the 12th Five Year Plan. 60% of

which is expected to be added by the private sector.

Fuel and sector wise capacity additions envisaged during the Eleventh Five Year Plan ending

March 31st, 2012

Expected Capacity Addition in 11th Five Year plan (Fig. In MW)

Sector Hydro Coal Gas Nuclear Total

State 3482 19985 3316 0 26782

Private 3491 9515 2037 0 15,043

Central 8654 23,350 1490 3380 36,874

Total 15,627 52,850 6843 3380 78,700

Source: CEA, March2010

According to latest reports GOI, in the next 20 years, urban population in India will grow to

590 million, twice the population of USA today, 70% net new employment will be generated

in cities, and 60 cities will reach a population of 1 million compared to 35 cities in Europetoday. Average national income will grow four-fold in the next 2 decades. Therefore, for

infrastructure developers, the sky is the limit.

Looking towards the growth in the population and the needs of the coming aspiring

generation, the gap in the infrastructure India have and the infrastructure India needs is

significantly very high. So there is lot of scope for constructions sector companies to generate

profit by serving to the Nations growth.


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Company Analysis

GMR Infra

GMR Infrastructure Li ited was

ori inall incorporated on May 10, 1996

as a public li ited company called

Varalakshmi Vasavi Power Projects

Limited in the State of Andhra Pradesh.

The Bangalore headquartered group is

one of the fastest growing infrastructure

organisations in the country with interests

in Airports, Energy, Highways and Urban Infrastructure (including SEZ). Employing the

Public Private Partnershi p model, the group has successfully implemented several

infrastructure projects in India.

Delhi International Airport Ltd has built and now controlled by GMR. Also GMRis holding

63% share in Hyderabad International Airport. Company is also holding IPL team called

Delhi Daredevil s.

Uni Dimensional analysis of GMR(`. In Cr)

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Revenue 152.32 159.20 102.77 33.39 59.60

Net profit 13.45 97.67 62.70 2.88 35.55

Capital 5,840.02 5,702.22 5,604.57 1,639.78 368.48

Debt 2,575.00 420.30 479.18 197.17 282.65

Fi ed Asset 23.71 0.81 0.68 0.81 1.11

NetCurrent 2,130.33 2,059.85 1,302.75 492.11 211.77

Investment 6,252.50 4,061.87 4,780.31 1,344.03 438.24

Current ratio 2.51 11.61 5.30 3.19 3.72

Debtors ratio 4.08 NA NA 2,319.91 111.44

Inventory turnover

ratio

1,038.00 NA NA NA NA

Profit margin 8.33 61.16 60.21 8.49 58.43

Earnings per share 0.04 0.54 0.34 0.09 1.34

Dividend payout

ratio

NA NA NA NA NA

Return on total 0.81 2.05 1.46 1.67 8.18

promoter

s

75

Fore

olding

8

B nks/Fis

/

8

others

9

Shareholding


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capital employed

P/E ratio 1558.75 87.87 220.58 400.22 NA

Dividend yield NA NA NA NA NA

Total debt to equity 0.44 0.07 0.09 0.12 0.77

Uni-Dimensional Analysis:

The companys revenue has grown with a CAGR 18.54% over the five years span. Company

has taken huge debt compare to previous year in 2010 which directly reflects into the increase

in Investment in 2010.Current ratio has came down from 11.61 to 2.51, which shows the

company has efficiently managed the liquidity. The companys net profit has came down

from 97.67 to 13.45 because increase in the manufacturing cost of the project. The company

has not given any dividend over last five year and has retained the earnings. Debt to Equity

ratio of the company has increased to 44% but still the company D-E is under the industry

average.

IVRCL

The company was established in 1990 and

Achieved Group turnover of 1 Billion USD

in less than two decades of our operations.

Strongly entrenched with proven domain

knowledge, experience and credentials,

IVRCL operates in the following

infrastructure sectors:

1) Water & Environment

2) Transportation

3) Buildings

4) Power

The company has announced that it has grabbed the orders of around Rs. 5502 in thisfinancial year. IVRCL has client list like Oil & Natural Gas Corporation Ltd, Bharat HeavyElectrical Ltd, National Thermal Power Corporation Ltd, Nuclear Power Corporation of India

Ltd, Bharat Petroleum Corporation Ltd, and Indian Oil Corporation Ltd etc..The company has

went into joint venture with CADAGUA, S.A, Spain plus expressways berhad, Malaysia

Beefesa, Spain, China Raily 18th

Bureau (group) co., Ltd, China Telcon, India - Hitachi -

Green Arm, Japan etc. The JV has helped the company to increase the revenue significantly.

In ian

Promote

r

11

FII's

63

private

Corporat

e Bo ies

13

General

Public

13

Share Holding


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Uni-dimensional analysis of IVRCL Infra (`. In Cr )

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Revenue 5507.784 5010.350 3665.124 2313.266 1537.86

Net profit 70.21 2,25.969 2,10.477 1,41.463 92.96

Capital 1853.259 1810.577 1605.978 1321.720 477.02

Debt 1613.323 1398.025 1067.841 556.109 678.63

Fixed Asset 566.40 520.70 319.20 192.92 110.73

Net Current 2,251.07 2,279.15 1,959.63 1,350.56 741.81

Investment 613.796 389.203 340.907 282.94 276.48

Current ratio 1.92 1.11 1.17 1.30 1.00

Debtors ratio 3.56 5.52 5.71 4.21 3.88

Inventory

turnover ratio

22.46 538.49 1263.64 28.82 53.86

Profit margin 1.27 4.45 5.58 5.94 6.04

Earnings per

share

2.63 16.93 15.77 10.91 8.69

Dividend payout

ratio (%)

40 70 70 50 50

Return on total

capital

employed

14.20 17.99 17.12 14.83 13.59

P/E ratio 62.88 3.59 12.68 13.10 15.98

Dividend yield

(%)

0.48% 2.3% 0.7% 0.69% 0.72%

Total debt to

equity

1.43 0.42 0.67 0.77 0.87

Uni-Dimensional:

IVRCls revenue has increased by 10% over previous year in 2010, but the increase in

revenue has not lead to increase in the net profit of the company. The net profit of the


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company has decreased by 68%. The increase in the debt can be compensated by increase in

the investment means company has utilised its debt to invest. Current ratio by remaining

same for past few years now has increased to 1.91 but still it is average than the industry

average. The company has worked on inventory management and has significantly reduced

its inventory turnover ratio. The P/E Ratio which shows that how many times the market

price of the stock is with EPS is 62.88, which means the current market price of the companyis costlier.

LANCO Infratech

Lanco Infratech Ltd is one of Indias top

business conglomerates and among the

fastest growing. Lanco Infratech has

subsidiaries and divisions across a

synergistic span of verticals. These

include Construction, Power, EPC,

Infrastructure, Property Development, and

Renewable. Lanco Infratech projects,

operational and underway, are spread

across India. A member of the UN Global

Compact, Lanco Infratech is recognizedfor its Good Corporate Governance and

Corporate Social Responsibility initiatives led by the Lanco Foundation. A preferred

employer, Lanco Infratech builds on a tradition and culture where trust comes first and the

credo is inspiring growth.

Lanco is fast emerging as one of the leading private sector power developers in India with

2087 MW under operation, 8468 MW under construction, and 1039 MW of projects under

development. Lanco's Vision for 2015isto build a High Performance Organisation with an

operating capacity of 15000 MW in Power.

Indian

r

ters

23%

F

reign

r

ters

45%

FII 's

1

%

General

public

3%

Ot

ers

10%

Share Holding


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Uni-dimensional analysis of Lanco Infratech (`. In Cr.)

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06Revenue 5998.214 4097.647 1603.625 553.399 152.738

Net profit 486.382 264.868 200.176 73.061 9.760

Capital 3160.64 1861.51 1593.10 1379.193 87.515

Debt 2733.748 1343.143 552.867 159.513 52.711

Fixed Asset 432.334 387.647 26.024 80.597 12.313

Net Current

asset

2067.92 859.30 232.18 115.54 1.64

Investment 3394.114 1957.71 1653.550 1342.649 126.284

Current ratio 1.61 1.31 0.90 1.06 0.96

Debtors ratio 3.39 4.65 4.16 4.55 3.67

Inventory

turnover ratio

13.16 9.67 10.01 11.35 12.58

Profit margin 8.10 6.46 12.49 13.20 6.39

Earnings per

share

2.04 11.91 9.00 3.29 3.17

Dividend payout

ratio

NA NA NA NA NA

Return on total

capital

employed

15.57 16.90 15.39 7.93 14.72

P/E ratio 26.22 1.24 4.32 4.92 NA

Dividend yield NA NA NA NA NA

Total debt to

equity

0.89 0.72 0.35 0.12 0.60


Lancos Revenue has grown with a CAGR of 765% over last five year, which means the top

line has shown significant growth over the period. Again the bottom line means the net profit

has increased proportionally with the revenue. The capital has almost doubled because of the

increase in the reserve of the company. Company has increased its debt almost double.

Companies EPS has come down to 2.04 against 11.91 in 2009. It has not given dividend to


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share holders. Company has

maintained D-E ratio below one

which shows that company is

solvent.

Nagarjuna construction:

NCCs range of business verticals

comprising of Buildings & Housing,

Transportation, Water &

Environment, Irrigation, Power,

Electricals, Metals, Oil & Gas and International business reflect an expertise positioned to

capture every infrastructure upturn. NCC has a reputed record of completing projects on time

without compromising on quality and is the only construction company in India to achieve

the recognition as one of the 250best under a billion listed companies in Asia Pacific in

2005 by Forbes Asia.

In the current year, the company has so far secured orders aggregating ` 2023 crores and the

OrderBook stood at ` 16051 crores as at the end of the quarter.

Uni-dimensional analysis of Nagarjuna Constructions (`. In Cr.)

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Revenue 4854.26 4358.11 3594.04 2967.37 1966.51

Net profit 232.62 153.86 161.95 115.66 103.90

Capital 2245.66 1685.55 1572.38 1039.03 945.14

Debt 1530.19 1243.88 893.83 1140.32 462.88

Fixed Asset 553.81 459.22 519.69 404.32 184.94

Net Current

asset

237.44 1701.84 1367.45 1278.70 1124.44

Investment 941.17 740.25 564.80 476.76 87.71

Current ratio 1.13 1.03 1.02 1.35 2.29

Debtors ratio 4.11 4.38 4.79 6.50 7.46

Pr ters

20%

FII

34%

Mutual

Funds

23%

B dies

C rpt.

23%

Share holding


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Inventory

turnover ratio

6.63 5.80 6.71 7.65 4.75

Profit margin 4.80 3.64 4.60 4.00 5.62

Earnings per

share

9.07 6.72 7.08 5.55 10.06

Dividend payout

ratio

65 55 65 60 80

Return on total

capital

employed

16.36 16.18 17.71 14.21 13.81

P/E ratio 17.92 9.21 3.008 28.63 17.96

Dividend yield

(%)

0.60 1.8 0.61 0.755 0.88

Total debt to

equity

0.68 0.74 0.57 1.10 0.49

Uni-dimensional Analysis:

Nagarjuna constructions revenue has grown with a CAGR of 29% over last five years. Net

profit has also increased with a CAGR of 25% over last five year. Companys debt has

increase over last year by 23%. Again fixed asset and investment has increased over last year.

Current ratio also has not changed significantly, which shows that company efficiency in

managing the liquidity effectively. The inventory turnover ratio is also very steady and

competitive. The EPS has increased from Rs. 6.72 to Rs. 9.07.

Era Infra Engineering

Ranked second as fastest growing infrastruction company in 2009, Era Infra Engineering is

promoted by Mr. H.S. Bharana, a civil

engineering professional with almost

three decades of experience in the

infrastructure business and a recognised

thought leader in nation building. The

company was established in 1990. The

companys business is of construction of

Power plans, Highways, Railways,

Airports, Urban Infrastructure,

Refineries, Industrial Complexes,

Commercial and Office buildings,

Residential complexes. Era has grabbed

a prestigious road construction project

from National High Authority of India

Indian

Pr ter

5

%

Inst.

Invest rs

11%

Privatee

! r " rate

# dies

25%

$ enral

Pub lic

5%

S are l i g


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(NHAI). AndEra Infra bags BHEL project.

Uni-dimensional analysis of Era infra (` In Cr.)

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Revenue 3604.65 2564.49 1532.52 784.97 313.27

Net profit 279.41 202.61 121.37 79.12 27.15

Capital 1456.49 867.87 489.59 304.96 240.21

Debt 2482.03 1796.35 1447.09 814.03 89.07

Fixed Asset 1380.03 1097.56 537.68 226.50 94.38

Net Current

asset

2174.68 1287.10 1008.06 623.81 219.18

Investment 285.26 176.14 218.49 125.20 12.55

Current ratio 4.05 0.86 1.02 1.81 1.38

Debtors ratio 4.12 4.10 4.56 4.99 4.43

Inventory

turnover ratio

3.76 3.57 3.90 3.65 7.57

Profit margin 8.12 8.41 8.20 10.23 8.69

Earnings per

share

15.59 14.11 52.53 42.51 14.58

Dividend payout

ratio

20 20 20 20 20

Return on total

capital

employed

15.38 16.19 15.62 14.03 15.39

P/E ratio 14.41 4.98 2.35 1.44 4.03

Dividend yield 0.62 0.568 1.68 3.24 3.396

Total debt to

equity

1.70 2.0 3.10 2.80 0.39



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Era Infra Engineering has shown revenue growth of CAGR of 210 % for last five years,

which is the very significant increase in the revenue. Net profit has increased by almost 38%

over 2009. The debt equity ratio has come down from 3.10 to 2 to 1.70 but it is not because it

has decreased its debt, it is because it has increased the capital over last three years time.

Current ratio of Era was good till 2009 but in 2010 it has increased to 4.05 because increase

in the allocation in to current asset. P/E ratio has increased from 4.98 to 14.41 though there isno decrease in the earning per share; it shows that the stock is overvalued compare to last

years valuation. If anyone had invested ` 100 last year in this company one would have

earned `220 this year

Multy-Dimensional Analysis (` in Cr.)

Particulars GMR IVRCL Lanco Nagarjuna Era

Revenue 152.32 5507.784 5998.214 4854.26 3604.65

Net profit 13.45 70.21 486.382 232.62 279.41

Capital 5,840.02 1853.259 3160.64 2245.66 1456.49

Debt 2,575.00 1613.323 2733.748 1530.19 2482.03

Fixed Asset 23.71 566.40 432.334 553.81 1380.03

Net Current 2,130.33 2,251.07 2067.92 237.44 2174.68

Investment 6,252.50 613.796 3394.114 941.17 285.26

Current ratio 2.51 1.92 1.61 1.13 4.05

Debtors ratio 4.08 3.56 3.39 4.11 4.12Inventory turnover

ratio

1,038.00 22.46 13.16 6.63 3.76

Profit margin 8.33 1.27 8.10 4.80 8.12

Earnings per share 0.04 2.63 2.04 9.07 15.59

Dividend payout

ratio

NA 40 NA 65 20

Return on total

capital employed

0.81 14.20 15.57 16.36 15.38

P/E ratio 1558.75 62.88 26.22 17.92 14.41

Dividend yield NA 0.48% NA 0.60 0.62

Total debt to equity 0.44 1.43 0.89 0.68 1.70

Multy-dimensional Analysis:


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The comparison of financials of five companies shows that highest revenue as well as net

profit is of Lanco Infratech. The net profit to revenue ratio shows that GMR have the highest

return on income, followed by Lanco Infratech, and then Era infra engineering. The capital

base of the GMR is largest in all five companies, which is justified by largest allocation to

investment. The short term liquidity position is strong for Era infra engineering (it is 4.05)

but it shows that the mismanagement of current asset and liabilities. GMR have the idealCurrent ratio which is 2.51 followed by IVRCL which is 1.91. All the five companies are

managing their receivable very efficiently because the debtors turn over period does not cross

the 5 day mark in any of the case. But if we see the inventory turnover ratio it is very high in

case of GMR but all other companies are doing well, the inventory turnover ratio is very

competitive in the case of Era infra engineering. Net profit ratio also goes in favour of GMR

which is 8.33 which means out of`100 net sales every `8.33 is net profit, Lancos net profit is

again good i.e. 8.10.Era infra engineering is ahead of everyone in maximising the

shareholders value, it is the most levered company out of all five, it has taken highest debt

proportionate to the capital all other companies have, Then followed by Nagarjuna

Construction which has earned ` 9.07 per share 2009-10.

Conclusion:

This sector has good growth potential, as government emphasising on development of

infrastructure which directly boost to the construction sector.

prasad vidolkar

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