Abstract
Poor execution to drag down the revenue growth ...
Infrastructure investment expected to double in the next Five Year Plan
Investment in the infrastructure sector plays a crucial role in the growth of
the economy and in turn the construction industry. In the last few years, the
rapid growth of the economy has put a tremendous pressure on the physical
infrastructure of the country. In order to sustain the economic growth, the
government has lined up huge investments across various infrastructure
segments. The total investment planned in the infrastructure sector during the
Twelfth Five Year Plan is estimated to double that in the Eleventh Five Year
Plan.
Investment in the infrastructure as a percentage of GDP has increased from
4.5% in FY04 to 7.9% in FY11. The Planning Commission has estimated that, for
the GDP to continue to grow at 9%, the proportion of investment in
infrastructure as a percentage of GDP is required to increase from the
targeted 8.4% in FY12 to 10.7 % by the terminal year of Twelfth Five Year Plan
i.e. FY17.
Using the top-down approach, the investment in the infrastructure sector
during the Twelfth Five Year Plan is estimated at a massive Rs.41,000 bn.
Based on construction intensity of the various infrastructure projects and
similar allocation among sectors during the Eleventh Five Year Plan, the
indicative effective construction investement is estimated at a whopping
Rs.20,000 bn during the Twelfth Five Year Plan.
Industrial sector - construction opportunity of more than Rs.4,200 bn ...
Apart from infrastructure projects, the construction industry also receives
orders from different manufacturing industries to execute construction work
for industrial plants and related civil construction. The construction
industry had been benefiting from the rise in industrial production in the
past few years. As on June 30, 2011, the total outstanding investment in the
industrial sector stood at about Rs.35,000 bn. Omitting the investment which
is already under implementation from the total outstanding investment, CARE
Research estimates the effective construction investment of more than Rs.4,200
bn during the next 4-5 years period.
Eventhough, the construction opportunity from both infrastructure and
industrial sectors looks immense; order inflow in the near term is likely to
be affected due to slowdown in capex cycle and awarding of infrastructure
projects by the government.
Delay in project execution to hamper the revenue growth...
In the past few years, with the improvement in the macroeconomic conditions
and the growing emphasis of the GoI on improving infrastructure in the
country, construction companies have been benefited. This is evident from the
bulging order backlog positions of the leading construction companies. The
multiple of order backlog to sales has been in the range of 2.4 to 3.3 times
over the past five years. In FY09, due to the overall economic slowdown and
poor liquidity conditions, the multiple had declined to a level of 2.4 times.
However, with the improvement in the macroeconomic scenario in FY10, awarding
of infrastructure projects caught pace and the multiple increased to three
times. At the end of the FY11, the multiple reached a level of 3.3 times which
was mainly on account of the muted topline growth due to poor order execution.
Eventhough, the multiple of aggregate order backlog to sales at 3.3 times
shows the decent revenue visibility for the construction companies, execution
of the order backlog remains a key challenge due to various issues.
On account of this, almost 30-35% of projects in the existing aggregate order
backlog are slow moving or stuck which can hamper the project execution to a
great extent and drag down the revenue growth. Taking this into consideration,
CARE Research has estimated that construction companies are expected to
register revenue growth at a CAGR of 29% during the period FY 11-14, much
below the potential revenue growth.
No respite on the margins front for construction companies ...
The PBIDT margin of construction companies largely depends on the order
backlog mix, movement in prices of key raw materials and the extent of
escalation clauses built into the contracts. Despite of the favourable order
backlog position, the PBIDT margin of construction companies was under
pressure in FY11 due to sluggish revenue growth led by the delay in order
execution and fairly high prices of key input materials like steel, cement,
bitumen, copper etc.
In FY 12, prices of key input commodities are expected to remain firm. With
intensified competition and delay in execution of order backlog, profitability
of the construction industry will remain under pressure. The PBIDT margin of
construction companies is expected to remain in the range of 15-16% in FY 12.
Moreover, increased borrowings and high interest rates will continue to hit
the bottom line of the construction industry.
Table of Contents
Index
Executive Summary
CARE Research's Outlook
Section I
Overview
- Construction Industry and GDP
- Sustained infrastructure focus - Proposals in the budget 2011-12
- Industrial sector
- Recuperating from the economic slowdown in FY09
- Bulged order book position but execution remains the key ...
Infrastructure sector
- Overview
- Eleventh Five Year Plan - investment targets revised downwards
marginally...
- Role of Private sector in the Eleventh Five Year Plan
- Road
- Overview
- NHDP
- PMGSY
- Investment in the road sector
- Power
- Plant Load Factor (PLF) & power deficit
- Power generation capacity addition
- Investment in the power sector
- Power transmission & distribution
- Ultra Mega Power projects (UMPPs)
- Port
- Cargo movement at ports
- Infrastructure bottlenecks at ports
- Maritime Agenda 2010 - 2020
- Investments in the port sector
- Airport
- Passenger traffic
- Cargo traffic
- Status of Metro airports
- Investment in the airport sector
- Railways
- Freight & passenger traffic carried by railways
- Vision 2020
- Investment in the rail sector
- Telecom
- Subscriber base in India
- Opportunity in the telecom market
- Investment in the telecom sector
- Urban Infrastructure
- Level of Urbanisation
- JNNURM
- Opportunities
- Investment in the water infrastructure
- Irrigation
- Rural Infrastructure Development
- Accelerated Irrigation Benefit Program (AIBP)
- Bharat Nirman
- Investment in the irrigation sector
Cost Structure & Margins
- Overall cost structure
- Raw material cost
- Major raw materials
- Sub-contracting cost
- Aggregate income & profit margins
- Rising trend of working-capital cycle
Player Profile
- Hindustan Construction Company Ltd.
- Nagarjuna Construction Company Ltd.
- Larsen & Toubro Ltd.
- IVRCL
- Punj Lloyd Ltd.
- Simplex Infrastructure Ltd.
Section II
Construction Component
Industry Characteristics
- Linkages with economy
- Highly fragmented
- Labour intensive
- Highly customised projects
- Varied profitability
- Varied gestation periods of construction projects
- Rising joint ventures
- Working-capital intensive
Introduction to Contracts
- Different entities in a Contract
- Flowchart of Process of a Contract
- Prequalification of contractors
- Types of contracts
- Private participation
- Comparison of different types of contracts
- Risks in construction industry
SWOT Analysis & Porter's Model
Table Index
Section I
Overview
- GDP and Construction at the factor cost
- GDP and Construction at the factor cost - Q1 FY12
- Projects abandoned in different industrial sectors
- New Projects announced - industrial sector
- Order backlog to sales multiple
- Order inflow of some major construction companies
Infrastructure sector
- Bifurcation of the types of roads in the country
- Details of authorities responsible for overseeing different categories of
roads
- Phase-wise details of NHDP
- Status of NHDP
- Status of PMGSY
- Bifurcation of power generation capacity through different routes
- Target power generation capacity addition - Eleventh Five Year Plan
- Brief Status of the UMPPs awarded
- Bifurcation of investment to be made under major and non major ports
- Details of projects under Maritime agenda 2010-2020
- Freight traffic carried by railways
- Bifurcation of the investment for Railway's Vision 2020
- Status of JNNURM (as on 31st December 2010)
- Details of irrigation projects under Bharat Nirman
- Trend of year wise irrigation area created under the Bharat Nirman
Cost Structure & Margins
- Total production of long steel products
- Total consumption of long steel products
- Production and consumption of galvanised steel products
- Consumption pattern of steel products by construction industry
Section II
Industry Characteristics
- GDP and Construction at factor cost
- Herfindahl Index of Concentration (FY10)
- Gross profit margin in different sub-sectors of infrastructure
- Examples of some JVs in construction industry
- Trend of net working-capital of construction companies
Introduction to Contracts
- Different entities involved in a contract
Figure Index
Section I
Overview
- Trend of IIP & Income of construction companies
- Order backlog position of construction companies
- Quarterly trend of increase in aggregate order inflow
- Order backlog bifurcation of top construction companies
Infrastructure Sector
- Trend of infrastructure investment as a percentage of GDP
- Trend of absolute investment in the infrastructure sector
- Investment planned in different sub-sectors of infrastructure sector
- Sectorwise infrastructure investment in the Eleventh Five Year Plan
- Share of private sector in infrastructure Investments
- Estimated investment by the private sector - Eleventh Five Year Plan
- Ranks of different countries based on quality of roads
- Trend of NHs added in different Five Year Plans
- Trend of road projects awarded by NHAI
- Investment in the road sector - Eleventh Five Year plan
- Trend of power generation capacity
- Sector-wise bifurcation of power generation capacity
- Trend of PLF
- Per capita power consumption
- Trend of demand-supply gap in the energy requirement
- Monthly trend of power deficit
- Capacity addition - Target Vs Achieved
- Investment in the power sector - Eleventh Five Year plan
- Trend of transmission & distribution losses
- Trend of cargo handled at major ports
- Investment in the port sector - Eleventh Five Year plan
- Trend of air passenger traffic
- Trend of growth in air passenger traffic in FY11
- Trend of air cargo traffic
- Trend of growth in air cargo traffic in FY11
- Trend of air passenger traffic at metro airports
- Trend of air cargo traffic at metro airports
- Investment in the aviation sector - Eleventh Five Year plan
- Growth in rail freight traffic
- Commodity-wise bifurcation of rail freight traffic in FY11
- Growth in rail passenger traffic
- Investment in the rail sector - Eleventh Five Year Plan
- Growth of subscriber base in India
- Trend of Wireless Subscriber base
- Market share of top players in wireless segment in FY11
- Trend of wire line subscriber base
- Market share of top players in wire line segment in FY11
- Investment in the telecom sector - Eleventh Five Year Plan
- Level of urbanisation across the globe
- Trend of growth in urbanisation in the country
- JNNURM: Spending by Sector for UIG and UIDSSMT
- Investment in the water infrastructure - Eleventh Five Year plan
- Trend of grant and irrigation area created under AIBP during FY97-10
- Investment in the irrigation sector - Eleventh Five Year Plan
Cost Structure & Margins
- Trend of overall cost structure
- Trend of Raw material cost as percentage of total income
- Raw material cost of different players in FY11
- Trend of cement consumption
- Average yearly price trend of cement per bag
- Average monthly price trend of cement per bag
- Trend of steel consumption by construction industry
- Average yearly price trend of steel products
- Average monthly price trend of steel products
- Sub-contracting cost of different players in FY 09
- Trend of sub-contracting cost as percentage of total income
- Trend of aggregate income & profit margins
- Trend of average working capital cycle of the construction industry
- Trend of average inventory period, average collection period and creditors
days
- Trend in net debt level
Section II
Construction component
- Construction component of various infrastructure sectors
Industry Characteristics
- Growth rates - Construction Vs GDP
Introduction to Contracts
- Flowchart of process of a contract
- Comparison of different types of contracts
