India - Infra Sector
India - Infra Sector
India - Infra Sector
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 1
20 December 2021 India Infrastructure Sector
Contents
Story in Charts ................................................................................................................................................................... 4
Infrastructure capex: Need of the hour for growth revival ................................................................................................... 7
National Infrastructure Pipeline comes to the fore with plans of over Rs 100trn in infrastructure capex over FY20-25 .........10
Transport is the largest driver of infrastructure spending but more needed ........................................................................13
The roads segment has witnessed the bulk of the action ....................................................................................................15
Railways has strong potential but needs to act fast ............................................................................................................22
Ports and Airports .............................................................................................................................................................26
Urban Infrastructure .........................................................................................................................................................27
Water segment has been the current government’s focus area ..........................................................................................30
Irrigation ..........................................................................................................................................................................33
River inter-linking: Huge EPC opportunity but lengthy execution timeline and challenges on land, environment, R&R .........36
Energy segment capex lacks a clear roadmap .....................................................................................................................39
Despite the loopholes, NIP is an appreciable attempt at a process-based approach to infrastructure development .............44
Counter-cyclical infrastructure spending – will the government go for it? ...........................................................................51
Distressed public debt situation leaves limited room for growth stimulus ..........................................................................52
Past episodes of fiscal stress suggest capex share in government spending has deteriorated structurally ............................57
Comparison with the Global Financial Crisis of 2008 and 1997-2003 slowdown ...................................................................59
States account for ~58% of infrastructure spending but are in a significantly worse financial condition than the centre.......62
National Monetization Pipeline: Center’s recourse to bridge the funding gap until the fiscal crisis abates ...........................69
Spending and new awards have picked up sharply YTDFY22 ...............................................................................................77
Spending on roads is a silver lining in the clouds ................................................................................................................80
Valuation: Selective picks driven by earnings and cash flows ..............................................................................................86
Companies section
Larsen & Toubro ...............................................................................................................................................................90
NCC ................................................................................................................................................................................ 126
KNR Construction ............................................................................................................................................................ 147
PNC Infratech.................................................................................................................................................................. 170
Annexure ........................................................................................................................................................................ 192
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 2
Systematix
India Infrastructure Sector
20 December 2021
Institutional Equities
BSEIndustry
Infrastructure v/s BSE Sensex Institutional
plan of spending Rs 111trn through the National Infrastructure Pipeline Equities
(NIP). It has
xxxxxx unfurled other initiatives such as ‘Make in India’ and the production-linked-
180
SECTOR REPORT
Industry incentives (PLI) scheme to boost India’s competitiveness globally, which also calls
Systematix
160
xxxxxx for an infrastructure upgrade. We estimate the overall infrastructure capex to grow
140
IndustrySECTOR REPORT at a CAGR of 11.4% over FY21-26E – primarily due to spending on water supply,
120
transport and urban infrastructure, against the 19.4% CAGR witnessed over FY13-
100 19. Smaller niche players with specific exposure toInstitutional
these segments areEquities
a better
80 play on the opportunity than larger diversified players that are more exposed to
60 economy-wide slowdown. NCC Ltd (NJCC) is our top pick in the sector for its
Apr-21
May-21
Sep-21
Nov-21
Jan-21
Feb-21
Mar-21
Dec-20
Jul-21
Aug-21
Dec-21
Jun-21
Oct-21
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 3
20 December 2021 India Infrastructure Sector
Story in Charts
Exhibit 1: Infrastructure spending trajectory likely to slow Exhibit 2: …as increasingly, debt is being used to fund government
modestly over FY21-25E; 11.4% CAGR still reasonable revenue deficit and capex
(Rs bn)
(Rs tn) (x)
8,000
35 4.0
7,000 3.5
30
6,000 3.0
25
5,000 2.5
20
4,000 2.0
15
3,000 1.5
10
2,000 1.0
5 0.5
1,000
0 0.0
0
FY22E
FY24E
FY26E
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY12
FY15
FY25E
FY06
FY07
FY08
FY09
FY10
FY11
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY26E
Debt increase Capex
State Infra spend Centre Infra spend Debt increase/Capex (RHS) Linear (Debt increase/Capex (RHS))
Exhibit 3: A large part of India’s revenues used to service debt… Exhibit 4:…as its debt/revenue is amongst the highest globally
Italy
India
Indonesia
Malaysia
Vietnam
Brazil
Mexico
UK
China
Japan
Spain
Germany
Mexico India Italy Spain Brazil USA Germany United
Kingdom
Source: CMIE, Bloomberg, Systematix Research Source: CMIE, Bloomberg, State Budgets, Systematix Research
Exhibit 5: However, YTDFY22 capex by the centre is up sharply Exhibit 6: State capex has also turned sharply positive on a TTM
on a low base as the government has chosen to spend basis
(Rs mn) (Rs bn)
2,50,000 200% 5,000 50%
150% 4,500 40%
2,00,000
4,000 30%
100%
1,50,000 20%
3,500
50% 10%
1,00,000 3,000
0% 0%
2,500 -10%
50,000 -50%
2,000 -20%
0 -100%
1,500 -30%
FY11
YTDFY22
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-15
Sep-19
Sep-16
Sep-17
Sep-18
Sep-20
Sep-21
Monthly run-rate Centre Infra capex YoY growth (RHS) TTM State Capex YoY growth (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 4
20 December 2021 India Infrastructure Sector
Exhibit 7: Tender data too suggests sharp pick up on a TTM basis… Exhibit 8: …while award data is almost close to the previous peak
(Rs bn)
(Rs bn)
12,000 80%
6,000 120%
10,000 60% 100%
5,000
40% 80%
8,000 4,000 60%
20%
6,000 40%
0% 3,000
20%
4,000 2,000 0%
-20%
2,000 -20%
-40% 1,000
-40%
0 -60% 0 -60%
Aug-17
Jun-18
Dec-15
May-16
Mar-17
Dec-20
Oct-16
Apr-19
May-21
Oct-21
Jan-18
Nov-18
Jul-20
Feb-15
Jul-15
Sep-19
Feb-20
Apr-14
Apr-19
May-16
Dec-15
Mar-17
Dec-20
Aug-17
May-21
Feb-15
Oct-16
Oct-21
Jan-18
Jun-18
Nov-18
Sep-14
Jul-15
Sep-19
Feb-20
Jul-20
TTM tenders YoY growth (RHS) TTM awards YoY growth (RHS)
Source: Projects Today, Systematix Research Source: Projects Today, Systematix Research
Exhibit 9: Asset monetization could fund 20% of centre’s capex Exhibit 10: Sector orderbook: bill ratio is on an uptrend
1,200 20% (x)
1,000 4.0
15%
800 3.2
Rs bn
600 10%
2.4
400
5% 1.6
200
0.8
0 0%
FY22E FY23E FY24E FY25E 0.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Direct Asset Monetisation
Direct monetisation as % of Total Infra capex (RHS)
Direct monetisation as % of Centre Infra capex (RHS) Book to bill ratio
Source: Niti Aayog, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 11: Within the infrastructure sector, PNCL/KNRC/Ashoka/GR Infra standout for OCF/FCF generation and negligible interest cost
Market Cumulative OCF- Cumulative FCF- Cumulative OCF as Cumulative FCF as Average Interest
(Rs mn) Cap Interest Interest % of mkt cap % of mkt cap paid as % of EBITDA
(Rs bn) FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
KNR Constructions 82 17,770 9,628 6,528 2,187 22% 12% 8% 3% 8% 7%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
Sadbhav Engineering 7 4,562 4,495 (4,533) 2,452 62% 61% -61% 33% 39% 43%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Source: Systematix Research, Company, Bloomberg
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 5
20 December 2021 India Infrastructure Sector
Exhibit 12: L&T – Core E&C value has declined in the past 2.5 Exhibit 13: NJCC – worst seems behind as the company is on track
years, while tech businesses have created value for its shareholders to negligible debt by FY24E
(Rs/share)
30,000 1.2
2,500
25,000 1.0
2,000
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Mindtree LTTS
L&T Finance Holdco discount
L&T share price Core E&C value as of Mar-19 Net debt (Rs bn) Net D/E (x) RHS
Exhibit 14: KNRC is amongst the few to consistently generate Exhibit 15: …with PNCL being the other
positive OCF/FCF over the past 10 years
(Rs bn) (Rs bn)
6 8
5 6
4
4
3
2 2
1
0
0
-1 -2
-2
-4
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY14
FY22E
FY23E
FY13
FY15
FY16
FY17
FY18
FY19
FY20
OCF - Net Interest expense FCF - Net Interest expense OCF - Net Interest Expense FCF - Net Interest Expense
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 6
20 December 2021 India Infrastructure Sector
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 7
20 December 2021 India Infrastructure Sector
Exhibit 19: Infrastructure Vision 2025 by the GoI is aspirational and meeting this would call for substantial investment
Goals Strategy
Affordable & clean energy • 24x7 power supply for all - reliable transmission and distribution infrastructure.
• 100% population coverage for telecom and high-quality broadband services for socio-economic empowerment
Digital services access for all of every citizen.
• Digital payments and e-governance infrastructure for delivery of banking and public services.
• Enhanced road connectivity to remotest areas with extensive charging and on-road traction infrastructure for e-
vehicles.
• World-class stations and fully integrated rail network with connectivity to remote regions & focus on safety.
• Airport and related infrastructure to enable international and regional connectivity to achieve passenger and
Convenient & efficient
cargo traffic, in line with the National Civil Aviation Policy 2016 vision.
transportation and logistics
• Ports and waterways infrastructure focused on reducing logistics time and cost for foreign and domestic trade as
per the Sagarmala National Perspective Plan 2016.
• Urban mobility-mass rapid transit system (MRTS) and bus connectivity within 800m homes in more than 50
cities.
• Housing for All by 2022 – Pradhan Mantri Awas Yojana; negligible slum population.
Housing and water supply
• All households to have piped water supply, meeting national standards by 2024.
• Increased irrigation and micro–irrigation coverage.
Doubling farmers’ income • Integrated agri-logistics systems from farm-gate to end consumers – storage, processing and packing,
transportation, market and digital infrastructure for agriculture produce.
• World-class educational institutes for teaching and research, technology-driven learning meeting gross
Quality education
enrolment ratio target as per draft National Education Policy 2019.
• Superior accessible primary, secondary and tertiary healthcare infrastructure facilities across India to meet the
National Health Policy 2017 goals.
Good health & well-being
• Medical, para-medical education infrastructure meeting manpower needs by 2025 as per Indian Public
Healthcare Standards.
• Waste-water collection, treatment/recycling to national standards in all towns across India.
Sustainable and smart cities
• Smart city infrastructure for mobility, entertainment, business, high-quality river-front and safety.
Disaster resilience • Design and construct public infrastructure to meet disaster resilience standards in infrastructure.
• Use data generated by infrastructure services in enhancing quality, safety and efficiency of operation and
Leverage technology maintenance of infrastructure services.
for public good • Leverage technology to enhance cost efficiency, access, durability and resilience of public infrastructure
projects.
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 8
20 December 2021 India Infrastructure Sector
Exhibit 20: India ranks poorly on the Global Competitiveness Index in Infrastructure
Parameter India’s rank
Transport infrastructure 28
Road connectivity 72
Quality of road infrastructure 48
Railroad density 39
Efficiency of train services 30
Airport connectivity 4
Efficiency of air transport services 59
Liner shipping connectivity 25
Efficiency of seaport services 49
Utility infrastructure 103
Electricity access 105
Electricity supply quality 108
Exposure to unsafe drinking water 106
Reliability of water supply 96
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix
Research
Exhibit 21: Infrastructure investment over FY13-19 has remained rangebound at ~6% of GDP
Sector FY13 FY14 FY15 FY16 FY17 FY18P FY19P Total
Power 2.3 2.5 2.5 2.7 3.2 2.6 1.9 17.7
Roads and bridges 1 1.1 1.2 1.4 1.8 1.9 1.9 10.3
Urban 0.7 0.9 1.1 1.2 1.3 1.7 1.8 8.7
Telecom 0.4 0.7 1.1 1.6 1.1 1 1 6.9
Railways 0.4 0.4 0.4 0.8 0.9 1.3 1.4 5.6
Irrigation 0.5 0.5 0.5 0.7 0.8 1 1.2 5.2
Airports 0 0.1 0.1 0.1 0.1 0.1 0.1 0.6
Ports 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.7
Others 0.1 0.1 0 0.1 0.1 0.5 0.5 1.4
Total infrastructure investments (A) 5.3 6.3 7 8.5 9.2 10.2 10 56.7
Nominal GDP (B) 99.4 112.3 124.7 137.6 153.6 171 190.1 988.7
Infra investment as % of Nominal GDP (A / B) 5.50% 5.60% 5.60% 6.20% 6.00% 6.00% 5.30% 5.70%
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 9
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 10
20 December 2021 India Infrastructure Sector
Exhibit 22: Sector-wise investment plan as per NIP; we estimate ~60% achievement
Value of projects Historical trend Future run-rate
(Rs bn)
NIP Our est FY16 FY17 FY18 FY19 FY20P FY21E FY22E NIP Our est
Transport 54,677 39,778 10,415 7,264
Roads 28,300 20,386 1,552 1,920 2,115 2,585 2,769 2,607 2,912 5,695 3,717
Railways, of which 15,001 14,908 935 1,099 1,020 1,334 1,480 1,608 2,099 2,824 2,800
Railway Tracks 11,900
Railway Rolling Stock 3,010
Rail Terminal Infra 91
Urban public Transport 8,890 3,962 217 300 312 358 396 215 303 1,482 660
Ports 635 168 106 28
Airports Infrastructure 1,600 239 267 40
Inland Waterways 232 100 39 17
Shipyards 19 15 3 3
Logistics 2,741 1,919 457 320
Energy 28,558 14,237 4,760 2,373
Electricity Distribution 3,780 2,646 630 441
Generation (Non Renewable) 9,300 1,860 1,550 310
Electricity Transmission 3,960 2,772 660 462
Generation (Renewable) 11,030 6,618 1,838 1,103
Oil/ Gas/ LNG storage 488 341 81 57
Water & Sanitation 21,514 8,131 4,803 1,480
Irrigation 12,890 5,378 686 834 826 929 929 697 767 2,857 979
WTP 7,740 2,134 188 228 287 320 336 252 290 1,800 398
Sewage collection 645 452 108 75
Solid Waste Management 129 90 21 15
Storm Water Drainage 110 77 18 13
Communications 980 882 163 147
Social Infrastructure 13,956 9,769 2,326 1,628
Commercial Infrastructure 5,768 3,461 961 577
Grand Total 128,194 78,178 23,885 13,789
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 11
20 December 2021 India Infrastructure Sector
Exhibit 23: Transport, energy and water are the largest sectors Exhibit 24: Projects comprising 80% of those listed under NIP
proposed under NIP followed by affordable housing (social infra)
5,768 NIP split by sectors (Rs bn) 4,038 NIP split as per identified projects (Rs bn)
13,956 11,605
Transport
Transport
980 891
Logistics
Logistics
40,678
54,677 Energy
Energy
21,514 17,292
Water & Sanitation Water & Sanitation
Communications Communications
2,094 Commercial
28,558 2,741 Commercial
26,997 Infrastructure
Infrastructure
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 25: Roads, railways and metros constitute the bulk of the Exhibit 26: …while energy is dominated by renewables, thermal
opportunity in the transport segment (Rs bn)… generation and T&D capex in that order (Rs bn)
3,010 232
1,600 488
3,780
635 Electricity Distribution
Roads
Airports
9,300 Electricity Generation
Railway Rolling Stock (Renewable)
3,960
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 27: Irrigation (including river linking) and water supply Exhibit 28: Social infrastructure capex is largely driven by
& treatment drive the water & sanitation segment capex (Rs bn) affordable housing and some amount of education/medical infra
(Rs bn)
Irrigation
Education Infrastructure
7,740 WTP
1,840 Medical Infrastructure
Sewage collection Affordable Housing
12,890 Sports Infrastructure
Solid Waste
Management 9,570
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 12
20 December 2021 India Infrastructure Sector
Exhibit 30: However, most of the projects in the transport segment are in the implementation or conceptualization stage (Rs bn)
Urban Railway
Railway Inland
Stage Status Transport Roads public Ports Airports Rolling
Tracks Waterways
Transport Stock
Partially Commissioned 279 279
Notice to Proceed 11,786 3,484 2,287 3,402 7 183 2,423 -
Financial Closure
878 73 118 86 50 59 492 -
Implementation Achieved
Tender Awarded 1,202 1,049 - 81 18 - - 54
Tender Invited 1,080 - 1,080 - - - - -
Not Disclosed 3,770 3,621 43 48 47 - - 10
Idea Stage 13,811 6,954 4,504 1,875 15 445 15 4
Conceptualization
Not Disclosed 407 - 89 - 318 - - -
Design work 337 - 337
Tender Awarded 109 - 109 - - - -
Development DPR Approved 3,769 1,017 304 2,168 26 255 - -
DPR/Feasibility
2,508 2,157 98 - 123 102 - 28
Study in Progress
Not Disclosed 734 203 - - 10 384 - 137
Completed 7 7
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 13
20 December 2021 India Infrastructure Sector
Exhibit 31: Bulk of the new transport segment opportunities are planned under the
EPC/HAM route
(Rs bn)
30,000
25,000
While more EPC opportunities
are good from a sector 20,000
perspective, it also means 15,000
higher funding needs for the
government 10,000
5,000
0
EPC HAM PPP Not Disclosed
Roads Railway Tracks Urban public Transport
Ports Airports Railway Rolling Stock
Exhibit 32: Large projects in roads and railways either under implementation or in idea
stage
(Rs bn)
15,000
10,000
Roads and metros have a
reasonable DPR-approved 5,000
project pipeline; railways
projects largely in idea stage 0
Tender
Approved
Stage
Notice to
Awarded
Design
DPR/Feasibility
Concept
Awarded
Development
FC Achieved
Commissioned
Implementation
Invited
Proceed
Idea
work
Tender
Tender
NA -
DPR
Partly
NA -
Study
NA -
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 14
20 December 2021 India Infrastructure Sector
100.0
95.7 96.6 6
100 91.3 5.5 5.4
90 4.9
75.8 5 4.5 4.6
80
70 4
60
50 3
40
2
30
20 1
10
0 0
India USA China UK France India USA China UK France
Source: WEF Global Competitiveness Report, Transport Competitiveness Report
1
0.2 0.2 0.2 0.2 0.2 0.2 0.2
0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
FY15 FY16 FY17 FY18 FY19 FY20 FY21
National Highways State Highways Other Roads Total Roads
The sector itself has attracted significant investment over the past two decades. At
the start of the century, the sector pioneered several innovative public-private
partnership (PPP) models, which led to significant investments from private players.
Private sector participation, however, declined towards the end of the 12th Five Year
Plan owing to land acquisition and utility clearance hurdles, inadequate dispute
resolution mechanism and poor project preparation resulting in frequent change of
scope and aggressive bidding by developers.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 15
20 December 2021 India Infrastructure Sector
This has led to a significant increase in direct allocation of central government funds
to the roads sector, as EPC and HAM models were preferred over BOT (build,
operate, transfer)-Toll by the industry in recent times. The share of roads sector
investment in the overall infrastructure investment was ~17% between FY13-17,
rising at a ~16% CAGR. The rate of construction of national highways has more than
doubled since FY15.
Exhibit 36: Roads sector investment and share in total infrastructure investment
(Rs tn)
2.5 25%
2.0 20%
1.5 15%
1.0 10%
0.5 5%
0.0 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Exhibit 38: Total planned capex on roads by the centre over FY20-25
Capex over FY20 – FY25
Category No. of projects Length (km)
(Rs bn)
National highways 1,815 87,162 12,806
Expressways 5 2,142 1,017
Total 1,820 89,304 13,824
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 16
20 December 2021 India Infrastructure Sector
Exhibit 39: Total planned capital expenditure in roads over FY20-FY25
(Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 Total
Centre 2,478 2,597 2,517 1,725 1,702 2,804 13,824
States 847 1,236 1,053 803 705 522 6,514
Total 3,326 3,833 3,570 2,528 2,408 3,327 20,338
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 17
20 December 2021 India Infrastructure Sector
Exhibit 42: NHAI’s debt has ballooned while cess and toll revenue Exhibit 43: FY20-22 revenue projections unlikely to materialize,
have stagnated thereby necessitating recourse to budgetary support
(Rs bn) (x) (Rs bn)
4,500 12 500 60%
4,000 450
10 400 50%
3,500
350 40%
3,000 8
300
2,500 250 30%
6
2,000 200
150 20%
1,500 4
1,000 100 10%
2 50
500
0 0%
0 0
FY18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20P
FY21P
FY22E
FY13
FY21P
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20P
FY22E
Cess and toll revenue
Debt Debt to Cess and Toll revenue (RHS) Cess and toll revenue as a share of NHAI annual funding (RHS)
Exhibit 44: Interest outgo for NHAI has risen sharply and is now as high as 60% of cess
and toll revenue
(Rs bn)
300 70%
250 60%
50%
200
40%
150
30%
100
20%
50 10%
0 0%
FY19
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20P
FY21P
FY22E
Interest and other expenses on bond
Interest as a share of Cess and Toll (RHS)
Source: Systematix Research
• Compared to an annual spend of Rs 2.5trn on roads in FY20, the total NIP roads
pipeline is ~Rs 28.3trn, of which ~10% was spent by Mar-19. Assuming another Rs
2.5trn was spent in FY20, about Rs 22.5trn worth of remaining pipeline is in roads,
or 9x FY20 spending, providing strong visibility from a pipeline perspective.
• Of the Rs 18trn worth of road projects we identified (66% of total), Rs 8trn is
already under implementation while Rs 7trn is in the concept stage, leaving only
~Rs 3.2trn in the development stage.
• Further, only about Rs 1trn worth of road projects have their DPR approved,
which is <50% of the FY20 spending. A strong DPR-approved pipeline is required
for road spending to pick up fast, which is currently lacking.
• We thus expect road capex to pick up only gradually from the current high levels,
due to weak orders in the recent past and a weak DPR-approved pipeline. In the
longer-term though, road capex can pick up due to an overall strong pipeline in
place, if land acquisition, DPR work and funding are done quickly.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 18
20 December 2021 India Infrastructure Sector
2,000
PNCL, KNRC and Dilip Buildcon
to benefit as most DPR-ready 1,500
road projects are in their core
focus geographies 1,000
500
0
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Exhibit 46: For projects under development/concept stage, most land-ready projects
are in TN, AP and MP; Maharashtra and Karnataka are big opportunities but not land-
ready
(Rs bn)
Planned Road projects value split state-wise as per land acquired
1,600
1,400
KNRC and Dilip Buildcon to 1,200
benefit as most land-ready road 1,000
projects in TN, AP and MP 800
600
400
200
0
Bengal
Kerala
Karnataka
Others
Pradesh
Telangana
Jammu &
Assam
Maharashtra
Kashmir
West
Uttar
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 19
20 December 2021 India Infrastructure Sector
Exhibit 47: States with a larger opportunity basket in roads have a fair mix of centre
and state-funded projects
(Rs bn)
2,500
2,000
1,500
AP and TN have higher state-
1,000
funded road projects coming
up, while MH and UP have a 500
fair mix of centre and state-
funded projects. 0
Kerala
Gujarat
Pradesh
Karnataka
Others
West Bengal
Pradesh
Tamil Nadu
Telangana
Assam
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Centre States/UTs
2,000
1,500
1,000
500
Kerala
Gujarat
Karnataka
Others
Pradesh
Pradesh
Tamil Nadu
West Bengal
Telangana
Assam
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Key road projects in the NIP where ordering opportunity may come up
• Implementation stage:
➢ PMGSY (Rs 1.5trn unspent opportunity mostly relating to rural roads)
➢ Ganga Expressway (Rs 415bn; UP)
➢ Mukhya Mantri Gram Sadak Yojna, Gujarat (Rs 153bn opportunity mostly
relating to rural roads)
➢ Multiple road upgradation programs in Andhra Pradesh totaling over Rs
700bn
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 20
20 December 2021 India Infrastructure Sector
• Development/Conceptualization stage:
➢ Maharashtra/Karnataka border to Bengaluru road (HAM project worth Rs
312bn; land yet to be acquired)
➢ Amravati-Mydukur Road in AP (HAM project worth Rs 232bn; land yet to be
acquired)
➢ GVMC & VMC Road in AP (EPC project worth Rs 195bn; land acquired)
➢ Jharkhand/West Bengal border to Kolkata road (HAM project worth Rs
167bn; land yet to be acquired)
➢ Chennai-Trichy road in TN (HAM project worth Rs 145bn; land yet to be
acquired)
➢ Hyderabad to Telangana/Maharashtra border road (HAM project worth Rs
141bn; land yet to be acquired)
➢ Telangana/AP border to AP/Karnataka border road (HAM project worth Rs
134bn; land yet to be acquired)
➢ Dhule-Thane road in Maharashtra (HAM project worth Rs 127bn; land yet to
be acquired)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 21
20 December 2021 India Infrastructure Sector
Railways sector investment Share in total infra investment (RHS) Gross revenue receipts Operating ratio (RHS)
Source: Appraisal documents for five-year plans, CRIS estimates Source: Indian Railways Statistical Summary
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 22
20 December 2021 India Infrastructure Sector
Exhibit 51: Indian Railways is primarily dependent on freight traffic for its overall
revenues
(Rs bn)
2,000
1,800
1,600
1,400
1,226
1,200
1,115
1,135
1,069
1,020
1,031
1,000
916
1,174
800
600
400
511
507
486
463
443
424
365
125
200
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Passengers earnings Frieght earnings
Exhibit 52: Route km for Indian Railways has been nearly stagnant for several years
despite high dependency on both freight and passenger traffic
(Kms)
69,000
68,442
68,500
67,960
68,000
67,368 67,420
67,500
67,000 66,687
66,500 66,030
66,000 65,808
65,500
65,000
64,500
64,000
FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: Indian Railways Statistical Summary
Exhibit 53: Infrastructure deficit in Indian Railways – Freight Exhibit 54: …passenger throughout on absolute basis as well as
throughput in India significantly lags… relative to peers
(bn tonne-kms) (bn passenger-
3,000 kms)
1,400
2,445 2,492
2,500 1,150
2,146 1,200
2,000 1,000
800 685
1,500
600
1,000
620 400
500 123
200 78
71 11
0 0
USA China Russia India Germany USA China Russia India Germany
Source: World Development Indicators-World Bank, IR Yearbook 2018 Source: World Development Indicators-World Bank, IR Yearbook 2018
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 23
20 December 2021 India Infrastructure Sector
Exhibit 55: Indian Railways reform timeline
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 24
20 December 2021 India Infrastructure Sector
Exhibit 57: Segment-wise total planned capex on railways by the centre over FY20-25
Capex over FY20–FY25
Category No. of projects
(Rs bn)
New lines/gauge conversion 259 4,401
Capacity augmentation 266 2,480
Dedicated Freight Corridor 7 1,662
Rolling stock 31 2,755
High-speed rail 2 1,106
Others 159 1,184
Total 724 13,588
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Exhibit 58: Most of the proposed projects in railway tracks are either in the implementation or concept stage, where the DFC is the
single largest focus; new DFC projects are all in the concept stage and will take more than a decade to show results
Total Spent Proposed Mode of Project Project
(Rs bn) Current Status Completion
Project Cost till Mar-19 Capital Outlay Implementation Status Type
North South DFC Conceptualization NA 1,090 - 300 Not Disclosed Idea Stage Track
Mumbai-Ahmedabad
Implementation Dec-23 1,080 24 1,060 EPC Tender Invited Track
High Speed Rail
East West DFC Conceptualization Mar-28 1,060 - 390 EPC Idea Stage Track
Signaling System
Conceptualization Apr-30 779 - 427 EPC Idea Stage Signaling
Modernization
Notice to
JNPT-Rewari WDFC Implementation Dec-21 609 283 327 EPC Track
Proceed
East Coast DFC Conceptualization Mar-28 490 - 170 EPC Idea Stage Track
Construction of
Conceptualization Dec-22 456 - 455 EPC Idea Stage Track
ROBs/RUBs on GQ/GD
EDFC Ludhiana- Notice to
Implementation Dec-21 337 202 135 EPC Track
Sonnagar Proceed
Udahmpur-Baramulla Partially
Implementation Jun-22 279 180 99 EPC Track
via Srinagar Rail Link Commissioned
Bangalore Suburban
Line Capacity Conceptualization Mar-25 186 - 186 PPP Idea Stage Track
Upgradation
Source: Systematix Research, India Investment Grid
Exhibit 59: Out of Rs 8.8trn opportunity, only Rs 0.4trn is in the development stage, split between new tracks and upgrades; signalling
that the opportunity is entirely in the concept stage
(Rs bn) Signalling Technology Track Grand Total
New Track - - 7,595 7,595
Conceptualization - - 3,814 3,814
Development - - 267 267
Implementation - - 3,513 3,513
Upgradation 779 63 365 1,208
Conceptualization 779 - - 779
Development - - 135 135
Implementation - 63 230 294
Grand Total 779 63 7,960 8,802
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 25
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 26
20 December 2021 India Infrastructure Sector
Urban Infrastructure
Close to one-third of India’s population resides in urban areas, which could increase
to 50% in the next two decades. Historically, investments in the urban sector have
been close to 1% of the GDP.
While the urban population in India increased rapidly, there was no commensurate
supply of quality basic urban services. Between FY13-FY17, the share of urban sector
investment in overall infrastructure investment was ~14%.
In recent years, the importance of urban infrastructure has grown owing to its link
with economic growth, poverty reduction and quality of life. However, the lack of
funds at the urban local body level has generally constrained development in this
sector.
Investments in the urban sector have traditionally been undertaken by public sector
entities through budgetary allocations until recently, when some projects were also
undertaken through the private sector route.
There has been a steep rise in state investments from FY13 due to the launch of
flagship schemes such as Smart Cities, Atal Mission for Rejuvenation and Urban
Transformation (AMRUT), Heritage City Development and Augmentation Yojana
(HRIDAY), and Swachh Bharat Mission.
In recent years, the importance of housing infrastructure has also grown due to its
link with economic growth, poverty reduction and quality of life. To achieve the long-
term goal of Housing for All by 2022, the Government of India launched Pradhan
Mantri Awas Yojana (PMAY) in June 2015.
PMAY envisaged construction of ~11.2mn affordable houses in the urban areas and
~19.5mn affordable houses in the rural areas. Over FY16-9MFY20, a cumulative
investment of Rs 1.51trn has been made under PMAY (Urban).
Exhibit 61: India's rising urbanization trend calls for massive infrastructure upgrade
(bn)
1.6 45%
1.4 40%
1.2 35%
30%
1.0
25%
0.8
20%
0.6
15%
0.4 10%
0.2 5%
0.0 0%
1991 2001 2011 2030P
Source: CRIS estimates, Mckinsey Global Institute, Report of the Task Force - Department of Economic Affairs,
Ministry of Finance, GoI, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 27
20 December 2021 India Infrastructure Sector
Exhibit 62: Segment-wise urban infrastructure capex plan by the centre over FY20-25
(Rs bn) No of projects Capex over FY20-25
Affordable Housing 98 5,407
Urban Transport / MRTS 50 5,734
Street Lighting / Solid Waste Management (Smart City Mission) 809 1,315
Water Supply and Sanitation / Green Parks / Sewage Treatment Plant (AMRUT) 405 474
Water supply, rejuvenation of water bodies, waste water collection and treatment (Jal Jeevan Mission) - 2,795
Total 1,362 15,724
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 28
20 December 2021 India Infrastructure Sector
• Key metro rail projects where DPR is approved are Chennai Phase II, Delhi-
Gurugram SNB NCRTC, Navghar-Balavali Multi Modal Corridor in Maharashtra,
Thane, Delhi Phase-IV, Bangalore Phase-3, Vijayawada, Hinjewadi-Shivajinagar in
Pune, Visakhapatnam, Nagpur Phase II and Bangalore Phase 2A.
Exhibit 65: Metro projects are the most-ready from an ordering Exhibit 66: Most metro projects are on the EPC mode
perspective
(Rs bn) (Rs bn)
8,000 8,000
6,000 6,000
4,000 4,000
2,000 2,000
0 0
Metro
Metro
Additonal Suburban
Traffic Infra
Additonal Suburban
Transport Hub
Transport Hub
Transport Hub
Transport Hub
Traffic Infra
Bus Terminal/Infra
Bus Terminal/Infra
EMU Procurement
EMU Procurement
Intergrated
Intergrated
Integrated
Integrated
Road/
Road/
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 67: Rs 0.8trn worth of tender-ready metro projects await with a reasonable mix
of state and external funding
(Rs bn)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Design DPR Financial Idea Stage Not Notice to Tender
work Approved Closure Disclosed Proceed Awarded
Achieved
Centre State Debt Internal Accruals External PPP VGF/
Aid Grant
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 29
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 30
20 December 2021 India Infrastructure Sector
Exhibit 70: Expenditure under NRDWP Exhibit 71: Rural households with piped water supply (% of total)
(Rs bn)
50%
45%
120 110 45%
97 100
92
40%
100
35%
80 70 30%
60 25%
60 55
44 20% 17% 18%
16%
13% 14%
40 15%
10%
20
5%
0 0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21RE FY15 FY16 FY17 FY18 FY19 Dec-21
Source: NRDWP website Source: NRDWP website
120%
95% 96%
100%
80%
56%
60% 49%
40%
20%
0%
People using at least basic drinking People using safely managed drinking
water services, urban water services (% of urban population)
(% of urban population)
FY14 FY17
Exhibit 73: Urban population using safely managed drinking water (% of population)
(% of
population)
100 92 89 92 90 92 90 92 91
90 83 83 82 82
80
70 61 61 61 61
54 56
60 49 51
50
40
30
20
10
0
2014 2015 2016 2017
India China Sri Lanka Philippines South Africa
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 31
20 December 2021 India Infrastructure Sector
Water & sanitation makeup over 17% of NIP projects by value and is the third-largest
segment after transport and energy.
• Within water & sanitation, irrigation is the largest segment with planned spending
of Rs 12.89trn. Almost Rs 5trn of the irrigation projects are already under
implementation (with 50% of project cost already spent), while many remaining
projects are in the conceptual stage.
• Water treatment projects is the second largest area with planned spending of Rs
7.74trn. Almost the entire spending here is dominated by the pet scheme Jal
Jeevan Mission where work is already under implementation/development.
• As compared to capital spending of ~Rs 0.35trn in FY20 on water supply projects,
the total NIP pipeline in water treatment projects (WTP) is about Rs 7.74tn, of
which almost the entire amount was yet to be incurred as of Mar-19.
• Since then, we have seen a fair amount of progress relating to Jal Jeevan Mission
projects in the country but assume overall spending to be in-line with FY20 levels.
Assuming that another Rs 0.7trn was spent over FY20-21, about Rs 7trn worth of
remaining pipeline is in WTP, or 20x of FY20 spending, thus providing strong
visibility at least from a pipeline perspective.
• Despite the ambitious pipeline in the WTP segment, the bulk is through just two
different schemes of Jal Jeevan Mission (JJM) – Rural and Urban. JJM-Rural is the
priority area for the Government; JJM-Urban may be taken up later.
Exhibit 74: Irrigation and water supply (WTP) - key segments Exhibit 75: Water segment opportunity segregated as per
where spending is planned remaining identified capital outlay
(Rs bn) (Rs bn)
14,000 Water & Sanitation
8,000
12,000 7,000
6,000
10,000
5,000
8,000
4,000
6,000 3,000
4,000 2,000
1,000
2,000
0
0 Irrigation WTP Sewage Solid Waste
Irrigation WTP Sewage Solid Waste Storm Water collection Management
collection Management Drainage
System Implementation Conceptualization Development
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 76: Almost 83% of Rs 7.7trn spending on water treatment projects outlined for
the Jal Jeevan mission; much of the remaining spending is for piped water supply
planned by individual states and may merge with JJM eventually
17%
36%
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 32
20 December 2021 India Infrastructure Sector
Irrigation
Investment in the irrigation sector is critical as it directly impacts agriculture and the
rural economy in India. Over FY13-17, the irrigation sector investment in the overall
infrastructure investment was ~9%, having grown at a ~5% CAGR. Investments in
irrigation are mainly driven by respective state governments.
The overall net irrigated area (NIA) in India has barely increased between FY15 and
FY19 (CAGR of ~2%); in comparison, the area under micro-irrigation grew at a ~10%
CAGR during the same period, owing to the governmen’ts continued focus in the
form of targeted, centrally-sponsored schemes and initiatives. However, the share of
sprinkler irrigation declined from 56% to 53% during this period, with a
commensurate increase in the share of drip irrigation.
Agriculture accounts for 80% of the current water consumption. Of the country's
140mn ha of the net sown area, net irrigated area is about 68mn ha and the
remaining 72mn ha is rain-fed. Of the net irrigated area, about 40% is irrigated
through canal systems and 60% through groundwater. Groundwater is being
overexploited in large areas of the country. With declining per capita water
availability, over-exploitation and inefficiencies cause alarm.
Exhibit 77: Irrigation sector investment and share in total Exhibit 78: Net irrigated area in India has barely increased
infrastructure investment over FY15-19
(Rs tn) (mn ha)
1.0 10% 70 60%
0.9 9%
0.8 8% 50%
65
0.7 7%
40%
0.6 6%
0.5 5% 60 30%
0.4 4%
0.3 3% 20%
55
0.2 2%
10%
0.1 1%
0.0 0% 50 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY15 FY16 FY17 FY18 FY19 Feb-21
Irrigation sector investment Share in total infra investment (RHS) Net irrigated area (NIA) Irrigation coverage (RHS)
Source: Appraisal documents for five-year plans, CRIS estimates Source: Ministry of Agriculture Annual Reports
Exhibit 79: Micro-irrigation in India has grown at an 8%+ CAGR Exhibit 80: …led by drip irrigation
over FY15-21…
(mn ha) (% share)
14 20% 100%
90%
12
80%
15% 56% 55% 54% 53% 53% 53%
10 70%
60%
8
10% 50%
6 40%
4 30%
5% 20% 44% 45% 46% 47% 47% 47%
2 10%
0 0% 0%
FY15 FY16 FY17 FY18 FY19 Feb-21 FY15 FY16 FY17 FY18 FY19 Feb-21
Source: Pradhan Mantri Krishi Sinchai Yojana Source: Pradhan Mantri Krishi Sinchai Yojana
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 33
20 December 2021 India Infrastructure Sector
Exhibit 81: Rain-fed agriculture dominates in India despite low Exhibit 82: Concerns of water scarcity rising as per capita water
irrigation efficiency availability is declining due to groundwater over-exploitation
(tonnes per ha) (cu m)
52% 3.0 6,000
5,177
51% 2.5 5,000
51%
2.0 4,000
50%
1.5
50% 3,000
1.0
49% 2,000 1,508 1,465
49% 0.5 1,235
1,000
48% 0.0
Irrigated Area Rainfed Area
0
% of total agricultural land Mean productivity (RHS) 1951 2014 2025(P) 2050(P)
Source: ICAR, PIB Source: ICAR, PIB
Exhibit 84: Year-wise break-up of total irrigation capex planned over FY20-25
(Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 Total
Line ministry 398 618 541 454 284 197 2,492
States 721 1,386 1,219 929 875 516 6,453
Overall total 1,145 2,006 1,757 1,374 1,153 705 8,945
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
• Compared to a spend of ~Rs 1trn on irrigation projects in FY20, the total NIP
pipeline in the irrigation sector is about Rs 12.89trn, of which about 20% was
already spent by Mar-19. Assuming that another Rs 2trn was spent over FY20-21,
about Rs 8.4trn worth of remaining pipeline is in irrigation, or 8x of FY20
spending, thus providing strong visibility at least from a pipeline perspective.
• However, upon drilling down into the specifics of the irrigation projects, we find
that irrigation pipeline can broadly be divided into two kinds 1) projects under
implementation (about Rs 5trn) and 2) projects in the idea stage worth about Rs
4trn. Of the projects under implementation, over 50% of the work had been
completed as of Mar-19, and we assume over FY20-21, a large part of the
remaining work too would have been completed.
• On the other hand, for the projects in the idea stage, the list comprises mostly
ambitious projects such as the river inter-linking projects, which may not see the
light of the day for several years.
• An analysis of the geographical mix of the proposed irrigation projects
unsurprisingly suggests that most of the large projects are in Telangana,
Karnataka and Andhra Pradesh, which will benefit EPC players like KNRC, NJCC
and Megha Engineering that are active in these geographies.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 34
20 December 2021 India Infrastructure Sector
Exhibit 85: Telangana, AP, Karnataka and MP have most of the upcoming irrigation
projects – to benefit players like KNRC, NJCC, Megha and Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
1,500
KNRC, NJCC, Megha and Dilip 1,000
Buildcon to benefit as most of 500
the large irrigation projects are
0
in their core focus geographies
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Tamil Nadu I Telangana
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Gujarat I Maharashtra
Pradesh
Andhra
Uttar Pradesh
Andhra Pradesh I
Conceptualization Development Implementation
Exhibit 86: Most of the large irrigation projects are in AP, Karnataka and Telangana; large value of centre-funded projects are in the
conceptualization stage
Conceptualization Development Implementation Promoter
(Rs bn) DPR/
Idea DPR Notice to
Feasibility Study Centre States/UTs Grand Total
Stage Approved Proceed
in Progress
Andhra Pradesh 213 - - 1,084 952 345 1,297
Andhra Pradesh | Tamil
606 - - - 606 - 606
Nadu | Telangana
Gujarat - 42 - 315 315 42 358
Gujarat | Maharashtra 102 - - - 102 - 102
Jharkhand - - - 140 140 - 140
Karnataka 1,549 - - 218 108 1,659 1,768
Madhya Pradesh - 225 298 327 - 850 850
Madhya Pradesh | Uttar
351 - - - 351 - 351
Pradesh
Maharashtra - - - 128 128 - 128
Pan India 374 - - 261 635 - 635
Tamil Nadu 575 - - - - 575 575
Telangana - - - 2,294 175 2,119 2,294
Uttar Pradesh - - - 101 101 - 101
West Bengal 82 - 48 129 - 259 259
Odisha 100 - - - - 100 100
Grand Total 3,952 268 346 4,998 3,614 5,950 9,564
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 35
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 36
20 December 2021 India Infrastructure Sector
The funding plan for river inter-linking projects is over-ambitious, with 85%
expected from banks/ multi-lateral agencies
• According to the minutes of the meeting of the task force set up for river inter-
linking projects, even as the project cost is estimated at a massive Rs 10.6trn (USD
150bn) over CY21-50, the government support for this is targeted to be kept
extremely low at 15-17% of the overall project cost.
• Domestic commercial banks are expected to fund 24-44% of the cost, while other
financial institutions, including multilateral agencies, are expected to fund the
remaining 39-59% of the cost.
• Such optimistic assumptions about external/bank funding for the project would
be a non-starter, especially given that there is no established and proven cost-
recovery option.
• Even with 15% government’s share of financing estimate, as per the task force’s
estimates, the cumulative impact over 2021-50 on India’s fiscal deficit (as a % of
GDP) will be 42bps.
• The existing DPRs prepared for the three (out of four) priority projects may
require further review of their comprehensiveness and validity on social and
environmental impact assessments. Economic and financial appraisals of the
projects also need to be revised because they are based on a methodology that
differs from the multi-lateral funding agencies.
• The ILR program also involves certain unique risk factors such as –
➢ Inter-state issues of specified links/groups where a river may cross two or
more states, resulting in water sharing disputes.
➢ International and inter-state issues of specified links/groups where a river
may cross two or more countries/states, resulting in even more complex
water sharing disputes.
Base-case capex phase out over 2021-50, leaving the annual opportunity to a
trickle
• We highlight the base-case capex phase-out of the river inter-linking project
below. Albeit ignoring the challenges associated with the project, we note that
the capex from these projects peaks out at Rs 712bn in 2026 and before that, it is
<Rs 200bn per annum.
• As compared with the annual spend of Rs 700-800bn on water supply and Rs
1trn+ on irrigation, these numbers do not look exciting at least until 2026.
• Given the significant social pushback along with environmental and execution
challenges associated with these projects, it is likely that the actual capex will be
even lower than that estimated by the task force in the base-case as below.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 37
20 December 2021 India Infrastructure Sector
Exhibit 88: Planned capex phasing as per river link over 2021-50
FY FY FY FY Total Cost with
(Rs bn) FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30
31-35 36-40 41-45 46-50 cost 25% adj.
Ken-Betwa 16 29 51 76 67 53 38 20 - - 349 437
Par-Tapi-Narmada 9 9 15 15 19 19 15 - - - 102 128
Damanganga-Pinjal - 3 8 7 6 4 2 - - - 30 38
Godavari (Akinepalli)
- - 23 36 64 97 86 68 50 26 451 564
- Cauvery
Rest of Group 4 35 35 35 35 35 627 803 1,004
Group 1 114 114 114 114 114 568 1,136 1,419
Group 2 75 75 75 75 75 375 750 938
Group 3 168 168 168 168 168 840 840 840 840 4,200 5,250
Parbati-Kalisindh-
4 4 4 4 4 20 39 49
Chambal
Bedti-Varda 11 11 22 27
Netravati–Hemavati 6 6 12 15
P.A.V Link 24 24 24 73 91
Equivalent irrigation
from BP water
158 158 158 474 592
dropped into
Mahanadi
Total Cost: FY16
26 41 96 134 157 569 537 484 445 422 2,605 1,039 1,022 864 8,441 NA
prices
Cost with technical
32 51 120 167 196 712 672 605 557 527 3,256 1,299 1,278 1,080 10,552 NA
adj. @25%
Source: Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 38
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 39
20 December 2021 India Infrastructure Sector
Exhibit 90: Per capita consumption in India is still relatively low Exhibit 91: …while distribution losses are amongst the highest
13,062
12,970
12,850
12,810
(KWh/person)
12,570
20%
14,000
18%
12,000 16%
10,000 14%
12%
8,000
4,900
10%
4,500
4,200
4,000
3,900
6,000 8%
6%
4,000
1,149
1,122
1,075
1,010
4%
957
2,000 2%
0 0%
2014 2015 2016 2017 2018 USA India China Singapore World
Source: International Energy Agency, CEIC, Energy Information Administration, CEA Source: IEA Energy Atlas (2018)
Exhibit 92: Power transmission lines addition in India has slowed and has room to grow
(cKm)
5,00,000 4,41,533
4,13,407 4,25,071
3,90,970
4,00,000 3,67,851
3,41,551
3,13,437
3,00,000
2,00,000
1,00,000
0
FY15 FY16 FY17 FY18 FY19 FY20 FY21
+/-800 kVHVDC +/-500 kVHVDC 765kV
400kV 220kV Total
Source: Central Electricity Authority
Exhibit 93: Year-wise planned capital expenditure in the power sector over FY20 to FY25
(Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 Total
Generation 301 538 638 635 650 507 3,268
Distribution 211 420 442 600 700 857 3,230
Transmission 549 539 507 515 515 415 3,041
Total 1,061 1,497 1,587 1,750 1,865 1,779 9,539
States 581 758 630 485 387 331 4,565
Overall total 1,641 2,256 2,217 2,235 2,252 2,110 14,104
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 40
20 December 2021 India Infrastructure Sector
Exhibit 94: Energy sector reforms timeline
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Exhibit 96: Total energy sector capital expenditure to be incurred from FY20 to FY25
(Rs bn) FY20 FY21 FY22 FY23 FY24 FY25 Total
Power 1,641 2,256 2,217 2,235 2,252 2,110 14,104
Renewable energy 305 1,510 1,440 1,700 2,170 2,170 9,295
Atomic Energy 116 215 283 331 327 283 1,555
PNG 273 435 483 415 229 105 1,946
Total 2,336 4,415 4,424 4,681 4,978 4,668 26,900
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 41
20 December 2021 India Infrastructure Sector
Exhibit 97: Entity-wise breakdown of planned power sector capex
Category Capex over FY20–FY25 (Rs bn)
Generation 3,268
NTPC 1,200
NHPC 440
THDC 104
SJVN 103
DVC 28
State (Hydro) 754
Private (Hydro) 638
Distribution 3,230
DDUGJY, IPDS, Proposed New Scheme 3,230
Transmission 3,041
PGCIL 655
DVC 5
State 1,900
Private 480
Total 9,539
States 4,565
Overall total 14,104
Source: Report of the Task Force - Department of Economic Affairs, Ministry of Finance, GoI
• Energy is the second-largest segment in the overall NIP plan with proposed
spending of Rs 27trn (now revised to Rs 35.7trn). Almost 46% of the total
proposed spending is planned for the renewables sector alone.
• The renewable capex target of Rs 16.28trn seems more of a top-down ambition
than a concrete plan for how that will materialize. In any case, energy generation
projects are driven mainly by market demand-supply factors and usually taken up
by private players and as such, the final number will depend on several factors
beyond the government’s control.
• In the non-renewable generation space, while the planned spending of Rs 6.4trn
looks rosy in the current environment, there are hardly any new thermal power
projects being set up either by NTPC or by private players. NTPC has publicly said
that it doesn’t plan to set up any new thermal power projects.
• Transmission and Distribution together have about Rs 10.25trn worth of capex
planned almost equally divided between the two. Of this, we are more hopeful of
transmission capex going through than the distribution part. A large part of
distribution capex will either be state-driven or dependent on the privatization of
discoms materializing, both of which look challenging in the short term.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 42
20 December 2021 India Infrastructure Sector
Exhibit 98: Most projects in the energy space are categorized as under development
despite limited clarity on progress and ownership; a large chunk of generation capex
may not materialize (Rs bn)
(Rs bn)
12,000
10,000
8,000
6,000
4,000
2,000
0
Electricity Electricity Electricity Electricity Oil/ Gas/ LNG
Distribution Generation Transmission Generation storage
(Non (Renewable)
Renewable)
Implementation Conceptualization Development
Exhibit 99: Over 75% of the proposed distribution capex is still Exhibit 100: Transmission projects have better visibility as almost
unidentified 65% of them are mapped geographically
(Rs bn) Proposed Distribution capex (Rs bn)
Proposed Transmission capex
3,500 1,600
3,000
2,500 1,200
2,000
1,500 800
1,000
500 400
0
Bijli Achchhadan Yojana
Distribution
Distribution
Others
DDUGJY scheme
Mukhyamantri Saur
IPDS Power
0
Jharkhand Sampoorna
Power
Distribution…
LT and HT lines
Transmission
Transmission
Transmission
Transmission
Bangalore Urban
Underground cable
Transmission
Transmission
Others
LT AG Connection to
Gandhinagar
HVDS Development
Hyderabad
Transmission
Lucknow
Chennai
Kamrup
Replacement
Power
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 101: Rs 6.41trn of capex planned in non-renewable Exhibit 102: Planned capex of Rs 16.28trn in renewable energy
generation; most projects are already under implementation while seems too ambitious – most of this is in solar, wind and hydro
others are unlikely to materialize projects
(Rs bn) Proposed non-renewable generation capex (Rs bn) Proposed renewable generation capex
3,750 5,000
3,000
2,250 4,000
1,500
3,000
750
0 2,000
Lara I 2x800 MW
Cheyyur UMPP
Gadarwara
Darlipali 2x800MW
North Karanpura
Ghatampur
Udangudi 2x660MW
Others
Yadadri Expansion
Power Generation
Barh I 3 x 660 MW
3x660 MW
2x800MW
Expansion
3x660 MW
1,000
Projects
expansion
0
Power Projects
Wind Power
development
Bio Power
Others
Solar Power
Hydro Power
Manufacturing
Generation
30 pumped
Projects
solar tender
Small Hydro
Projects
Projects
strorage
Projects
linked
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 43
20 December 2021 India Infrastructure Sector
NIP is not like the Project Monitoring Group (PMG) and will not suo moto push
infrastructure capex or resolve disputes
As per the mandate of the NIP, its role is still limited to identifying opportunities,
funding sources and suggesting measures to monitor the projects, unlike the Project
Monitoring Group (that was formed in 2013), which played a much more active role
in resolving issues.
• PMG used to facilitate collaboration between the states, centre and the project
entity apart from key stakeholders in the project; NIP by itself does not help with
that role though PMG and NIP are now part of the same department in the
government.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 44
20 December 2021 India Infrastructure Sector
• Dispute redressal in PMG is currently the onus of the affected party; given that
the bulk of infrastructure capex is in the public domain, there may not be any
aggrieved party if the project is delayed before construction award.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 45
20 December 2021 India Infrastructure Sector
Exhibit 103: As per remaining cost outlay, 37% of the projects are already under
implementation, while 39% are under development
(Rs bn)
NIP identified projects split as per remaining cost outlay
40,000
30,000
While the overall development
pipeline looks large, it is 20,000
primarily driven by renewables
and thermal power generation 10,000
projects
0
Implementation Conceptualization Development
Communications Transport Energy Water & Sanitation
Exhibit 104: Small development pipeline in transport; centered Exhibit 105: Energy development pipeline looks encouraging but
around roads and metros; most railway projects are still in the mostly driven by renewable and thermal generation projects
concept stage (Rs bn) where there may be limited takers (Rs bn)
(Rs bn) (Rs bn)
16,000
24,000
14,000
12,000 18,000
10,000
8,000 12,000
6,000
6,000
4,000
2,000 0
0 Implementation Conceptualization Development
Implementation Conceptualization Development Oil/ Gas/ LNG storage
Roads Railway Tracks Urban public Transport Electricity Generation (Renewable)
Electricity Transmission
Ports Airports Railway Rolling Stock
Electricity Generation (Non Renewable)
Inland Waterways Electricity Distribution
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Exhibit 106: Water space characterized by pet schemes such as JJM Exhibit 107: Affordable housing and education infrastructure form
(development) and river linking (concept stage) (Rs bn) the bulk of the social infrastructure segment (Rs bn)
(Rs bn) (Rs bn)
7,000 9,000
6,000 8,000
7,000
5,000 6,000
4,000 5,000
4,000
3,000 3,000
2,000 2,000
1,000
1,000 0
Implementation Conceptualization Development
0
Implementation Conceptualization Development Education Infrastructure Medical Infrastructure
Irrigation WTP Sewage collection Solid Waste Management Affordable Housing Sports Infrastructure
Source: Systematix Research, India Investment Grid Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 46
20 December 2021 India Infrastructure Sector
Exhibit 108: 45% of state projects are in the concept stage as against only 16% for centre-driven projects; projects in the concept stage
are most at risk; 58% of under-development projects are in the energy space (mostly renewable)
Implementation Conceptualization Development
(Rs bn) Others
Centre States/UTs Centre States/UTs Centre States/UTs
Transport 16,357 2,638 10,676 3,542 5,449 1,647 370
Roads 5,679 2,549 5,218 1,736 2,378 1,000
Railway Tracks 3,807 - 4,543 50 402 -
Urban public Transport 3,617 - 571 1,303 2,079 173 362
Ports 59 63 174 159 72 88 7
Airports 226 16 155 290 519 223
Railway Rolling Stock 2,915 - 15 - - -
Inland Waterways 54 10 - 4 - 164
Logistics 1,183 - 225 83 530 - 74
Transportation Pipelines 1,174 - 217 - 251 - 74
Logistics Infrastructure 8 - 8 83 279 -
Energy 2,641 1,428 108 1,349 20,396 1,076
Electricity Distribution - 138 - 28 3,330 55
Electricity Generation
2,587 896 - 851 3,124 890
(Non-Renewable)
Electricity Transmission - 215 - 320 3,202 77
Electricity Generation
- 106 - 116 10,684 -
(Renewable)
Oil/ Gas/ LNG storage 54 73 108 34 55 54
Water & Sanitation 5,944 3,155 1,494 2,943 2,828 928
Irrigation 2,181 2,817 1,433 2,519 - 614
WTP 3,637 270 42 180 2,808 273
Sewage collection 125 59 17 146 18 40
Solid Waste Management 2 9 2 98 2 2
Communications 791 20 48 - 31 -
Telecom (Fixed network) 171 - - - - -
Telecom services 619 - - - 13 -
Telecom Towers - 20 48 - 18 -
Social Infrastructure 8,741 215 381 346 1,567 355
Education Infrastructure 583 144 272 244 120 336
Medical Infrastructure 854 70 103 79 - 19
Affordable Housing 7,292 - - - 1,447 -
Sports Infrastructure 13 - 6 24 - -
Commercial Infrastructure 292 55 208 1,733 1,283 469
Common Infrastructure 242 54 208 1,533 385 441
Tourism Infrastructure - - - 156 - -
Terminal Markets 50 - - 30 75 22
Post-Harvest Storage
- 1 - 7 762 3
Infrastructure
Soil Testing Laboratories - - - 4 21 2
Cold Chain - - - 3 40 0
Grand Total 35,949 7,510 13,139 9,996 32,083 4,475 444
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 47
20 December 2021 India Infrastructure Sector
Exhibit 109: The bulk of the opportunity outside projects that are already under
implementation is either at the idea stage or a nascent stage of development without
ready DPRs – the time to market for them will be long (Rs bn)
(Rs bn)
30,000
20,000
DPR-approved projects are the
10,000
key for order visibility but are
only a handful – primarily in the
transport segment 0
Tender Invited
NA - Concept
Notice to
Idea Stage
Development
Design work
Awarded
Awarded
Implementation
Feasibility Study
Commissioned
FC Achieved
DPR Approved
Proceed
Tender
Tender
Partly
NA -
DPR/
NA -
Transport Energy Water & Sanitation Social Commercial Logistics Communications
Infrastructure Infrastructure
Exhibit 110: Most of the proposed projects in the energy sector do not have ready DPRs; overall <10% of projects in the
development/concept stage have ready DPRs
Water & Social Commercial
Status Logistics Energy Communications
Sanitation Infrastructure Infrastructure
Partially Commissioned - - - 171 - -
Notice to Proceed 913 3,996 5,271 619 3,485 346
Implementation Financial Closure Achieved - 73 24 20 103
Tender Awarded - - 19 - - -
Not Disclosed 298 - 3,785 - 5,368 -
Conceptualization Idea Stage 308 1,457 4,436 48 728 1,940
DPR Approved 315 120 340 31 338 414
DPR/Feasibility Study in
Development 260 1,011 3,416 - 656 1,287
Progress
Not Disclosed - 20,341 - - 928 50
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 48
20 December 2021 India Infrastructure Sector
Exhibit 111: Most under-implementation irrigation projects are in AP/Telangana, while
river linking projects are in the idea stage (Rs bn)
(Rs bn)
6,000
5,000
4,000
3,000
Bulk of the large water supply, 2,000
river inter-linking projects are 1,000
still in the idea stage while Jal 0
Implementation
Achieved
Approved
Stage
Awarded
Feasibility Study
Notice to
Jeevan Mission projects are in
Proceed
Idea
Tender
DPR
the DPR feasibility stage.
FC
DPR/
NA -
Irrigation WTP Sewage collection Solid Waste Management
Source: Systematix Research, India Investment Grid
Exhibit 112: Large development pipeline in the energy space led by renewals and T&D
(Rs bn)
(Rs bn)
25,000
20,000
15,000
10,000
Despite a large pipeline 5,000
0
categorized as being in the
Development
Achieved
Approved
Stage
Feasibility Study
Notice to
Proceed
Idea
development stage, energy
DPR
FC
NA -
sector projects are without
DPR/
ready DPRs. Large generation
pipeline also unlikely to
materialize.
Oil/ Gas/ LNG storage Electricity Generation (Renewable)
Electricity Transmission Electricity Generation (Non Renewable)
Electricity Distribution
Source: Systematix Research, India Investment Grid
Exhibit 113: Within social infrastructure, opportunities exist in the affordable housing
segment despite being classified largely as ‘under implementation’ (Rs bn)
(Rs bn)
6,000
5,000
4,000
3,000
Several large affordable 2,000
housing schemes under PMAY 1,000
and CLSS are classified under 0
Development
Approved
Stage
Achieved
Implementation
Feasibility Study
Notice to
Proceed
Idea
materialize.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 49
20 December 2021 India Infrastructure Sector
The government’s funding assumption for NIP is aggressive and challenging
• As per the Ministry of Finance presentation, the assumed shares of the
centre/state/private sector in the NIP target of Rs 111trn stand at 39%/40%/21%,
respectively. We believe this is an aggressive assumption across all spenders.
• We illustrate that the government has assumed a 21.5% CAGR in capital outlay
over FY20-25E and similar growth in budgetary support for infrastructure and
IEBR funding. Though this compares favourably with a ~24% CAGR in spending by
the centre over FY13-20 (26% IEBR and 22% budgetary support), it seems
aggressive when looked at against the growth over FY17-20 of just 12% CAGR
(15% IEBR and 10% budgetary support).
• Further, the worsening macroeconomic outlook does not justify the aggressive
assumption of 12.2% nominal GDP CAGR over FY20-25.
• On our estimate of Rs 73trn capex under the NIP and assuming a similar
centre/state/private split, the capital outlay CAGR for the centre asks for a 12%
CAGR. This would still call for an increase in budgetary outlay for infrastructure
capex by both the centre and states as a proportion of their revenues, which may
not be possible.
• In reality, we believe that demand for centre/state outlay will be even higher as in
the MoF’s assumption there is a huge reliance on the private sector in the roads
and power sectors, both of which may disappoint significantly.
• As such, the reliance on innovative methods of external funding is the key. While
some of these models are now being explored, the pick-up has been gradual and
is unlikely to compensate for the slowdown in the centre/state budgetary
support.
Exhibit 114: Government’s funding plan for NIP is based on aggressive assumptions
(Rs tn) FY19 RE FY20 BE FY21 FY22 FY23 FY24 FY25
Total Capital Outlay by Centre (Infra) A 3.54 3.77 4.58 5.56 6.76 8.21 9.97
Budgetary support (infra) B 1.39 1.53 1.86 2.25 2.74 3.33 4.04
C=B/A 39% 41% 41% 41% 41% 41% 41%
Budgetary Support/GDP (D=B/E) 0.73% 0.74% 0.82% 0.89% 0.96% 1.03% 1.11%
Incremental budgetary support/GDP vs FY20 0.07% 0.14% 0.21% 0.29% 0.36%
GDP in Rs trn (E) 190 205 227 254 286 323 365
% GDP growth assumed by Govt 8% 11% 12% 13% 13% 13%
Source: MoF, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 50
20 December 2021 India Infrastructure Sector
FY13
FY06
FY07
FY08
FY09
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 51
20 December 2021 India Infrastructure Sector
8.0% 45%
7.5%
40%
7.0%
6.5% 35%
6.0%
5.5% 30%
5.0%
25%
4.5%
4.0% 20%
FY98
FY08
FY22E
FY24E
FY26E
FY90
FY92
FY94
FY96
FY00
FY02
FY04
FY06
FY10
FY12
FY14
FY16
FY18
FY20
FY90
FY94
FY92
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22E
FY24E
FY26E
Interest payments/GDP Interest payments/Revenue
India’s worsening fiscal space can’t be justified against the rise in other countries…
While it is evident that growth and the rising fiscal stress are the key challenges for
the Indian economy, it is often argued that counter-cyclical spending on
infrastructure can bail out the economy from the pain.
Therefore, we look into past episodes of fiscal stress and the government’s ability
to launch a counter-cyclical infrastructure spending as large as the National
Infrastructure Pipeline.
While traditional economists and the mainstream media like to focus on debt as a %
of GDP, we look at debt and servicing ability as a proportion of government revenues
just as we would look at a company.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 52
20 December 2021 India Infrastructure Sector
The purpose of this analysis is to illustrate the key difference between India and
other countries in terms of the spending ability in the context of GDP.
The Indian government’s revenues are significantly lower than other
large/developed countries. As such, when one looks at debt/GDP, tax/GDP also
becomes a key metric to evaluate. This is where India fares poorly compared to other
countries as illustrated in the charts below.
Exhibit 118: India's capacity to support high levels of debt Exhibit 119: …as its tax collection as % of GDP is among the lowest
constrained by its ability to raise revenues…
(x)
Govt revenues as % of GDP
5.5 50 46 46
45
39 38
5.0 40 35
35 30 30
4.5 30 26
23
25 20 19 19
4.0 20
15 12
3.5 10
5
3.0 0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY26E
Indonesia
Malaysia
USA
India
Vietnam
Italy
Brazil
UK
Mexico
China
Germany
Spain
Japan
Public debt/Revenues
Exhibit 120: Large part of India’s revenues used to service debt… Exhibit 121: …as its debt/revenue is amongst the highest globally
China
India
USA
Malaysia
Indonesia
Vietnam
Brazil
Mexico
UK
Spain
Japan
Germany
Mexico India Italy Spain Brazil USA Germany United
Kingdom
Source: CMIE, Bloomberg, Systematix Research Source: State Budgets, Systematix Research
Why India must be wary of higher debt and interest cost unlike developed
markets?
Like corporates where high leverage and low debt servicing ability can lead to default
risk, the government’s balance sheet is also impacted in the same way. Exhibit 122
below shows that higher debt/revenue and fixed costs as a percentage of revenues
directly correlate with India’s sovereign ratings. While even other countries resort to
higher debt/GDP, it may not translate into a high debt/revenue multiple for them.
India’s low debt servicing capability puts it in a much more difficult situation.
Exhibit 124 shows how India’s sovereign rating has an almost perfect inverse
correlation with government interest expense/debt. Thus, to argue that India can
raise its debt/GDP and at the same time enjoy lower costs on that debt would be
optimistic.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 53
20 December 2021 India Infrastructure Sector
Exhibit 122: Debt/revenue has a direct bearing on the rating Exhibit 123: Fixed costs such as interest, subsidies and revenue
expenditure as a share of government revenues
(x) (%)
5.5 150
5.0 140
130
4.5
120
4.0
110
3.5 100
3.0 90
FY96
FY11
FY91
FY92
FY93
FY94
FY95
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20P
FY93
FY00
FY11
FY18
FY91
FY92
FY94
FY95
FY96
FY97
FY98
FY99
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20P
Public debt/Revenues Int + Sub + RevEx (RHS) 100% of revenue level (RHS)
Source: Systematix Research, India Budget, RBI Source: Systematix Research, India Budget, RBI
Exhibit 124: India’s sovereign credit rating over time …. Exhibit 125: …has a clear inverse relation to its borrowing cost
12 9.5%
11 9.0%
10 8.5%
8.0%
9
7.5%
8
7.0%
7
6.5%
6 6.0%
FY90
FY08
FY18
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY10
FY12
FY14
FY16
FY20
FY14
FY16
FY18
FY20
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
India S&P Rating Interest/Debt
Source: Systematix Research, S&P Source: Systematix Research, India Budget, RBI
Rating scale on LHS refers to BBB as 11, BBB- as 10, BB+ as 9 and BB as 8
India’s fiscal strength has deteriorated due to COVID-19 and structural issues that
will last for a while – implications are that the government’s ability for outsized
infrastructure capex is limited.
Exhibits 122 and 123 above show that India’s debt/revenue and debt servicing ability
improved continuously until FY17. However, a mix of factors such as subsidies and
structurally rising revenue expenditure has deteriorated these debt metrics.
As depicted below, we estimate these debt metrics to worsen to FY02-05 levels,
much greater than even during the Global Financial Crisis - GFC.
More importantly, while COVID-19 is a trigger, we highlight that the worsening of the
fiscal math was evident post FY17 and will sustain until FY25 unless the government
undertakes urgent measures to control the deterioration.
These measures could be either spending cutback or growth revival or a mix of both
– 1) cut back in spending, of which revenue expenditure is stubborn and unlikely to
reduce and thus the axe falls on capex, 2) sharp revival in nominal growth (preferably
non-agriculture) that boosts tax revenues for the government.
The current track record suggests that the government has chosen a cutback in
direct spending and is hoping for the private sector to chip in for growth spending.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 54
20 December 2021 India Infrastructure Sector
Traditionally, the key reason for borrowing by the government has been to fund
capex and was justified as it was productive expenditure. However, as Exhibit 126
illustrates, the government is increasingly borrowing to fund even its revenue
expenditure, leaving very little room for borrowing for capex.
The trend of debt increase/capex has an upward slope suggesting that increasingly,
debt is not only funding more than just capex, but it is worsening with every passing
year. Our estimates suggest that over FY21-26E, this ratio will aggravate as the
government will have to borrow more to service debt and revenue expenditure.
Exhibit 126: Increasingly, debt being used for funding even the revenue deficit and not
just capex – likely to aggravate further over FY21-26E (Rs trn)
(Rs tn) (x)
35 4.0
30 3.5
25 3.0
2.5
20
2.0
15
1.5
10 1.0
5 0.5
0 0.0
FY22E
FY26E
FY10
FY14
FY18
FY24E
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY12
FY16
FY20
Debt increase Capex
Debt increase/Capex (RHS) Linear (Debt increase/Capex (RHS))
Source: Systematix Research, India Budget, RBI
Impact of operating leverage from reducing fiscal space to leave little for direct
infrastructure spending
While traditional economists like to focus on debt as a % of GDP, we look at debt and
servicing ability as a proportion of government revenues just as we would look at a
company. We use this to illustrate a key difference between India and other
countries. For our analysis, we have considered –
• Tax and non-tax income as revenue; disinvestment proceeds are treated as
Extraordinary (XO) gains.
• Revenue expenditure (RevEx) excludes interest expense and subsidies.
• EBITDA is revenue minus revenue expenditure.
• PBT is EBITDA minus interest expense.
• PBT+XO gains is PBT + disinvestment proceeds.
• Debt/Revenues and 1-(Interest+Subsidy+RevEx/Revenues) are key metrics for
evaluating debt servicing capability.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 55
20 December 2021 India Infrastructure Sector
Exhibit 127: Downward trajectory for India’s revenue growth Exhibit 128: …while revenue expenditure growth on an
upward slope
(Rs tn) (Rs tn)
80 35% 70 30%
70 30%
60 25%
60 25%
20% 50
50 20%
15% 40
40 15%
10% 30
30
5% 10%
20 20
0%
10 10 5%
-5%
0 -10% 0 0%
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
FY05
FY06
FY07
FY08
FY01
FY02
FY03
FY04
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY11
FY13
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
Revenue % growth (RHS) Linear (% growth (RHS)) Revenue expenditure % growth (RHS) Linear (% growth (RHS))
Source: Systematix Research, India Budget, RBI Source: Systematix Research, India Budget, RBI
Exhibit 129: High operating leverage leaves little as EBITDA… Exhibit 130: … XO gains (disinvestment) made up for PBT loss until
FY17 but has worsened significantly since then
(Rs tn) (Rs tn)
8 35% 2
30% 0
6
25% -2
4 20% -4
15% -6
2
10% -8
0 5% -10
0% -12
-2
-5% -14
-4 -10% -16
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
FY04
FY09
FY17
FY01
FY02
FY03
FY05
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY18
FY19
FY20PA
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20PA
FY21EE
FY22EE
FY23EE
FY24EE
FY25EE
FY26EE
EBITDA EBITDA margin (RHS) PBT + XO Gains
Source: Systematix Research, India Budget, RBI Source: Systematix Research, India Budget, RBI
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 56
20 December 2021 India Infrastructure Sector
55%
50%
45%
40%
35%
30%
25%
20%
15%
FY98
FY12
FY86
FY88
FY90
FY92
FY94
FY96
FY00
FY02
FY04
FY06
FY08
FY10
FY14
FY16
FY18
FY26EE
FY22EE
FY24EE
FY20PA
Capex/Revenue
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 57
20 December 2021 India Infrastructure Sector
The centre’s capex has shifted from Defence and ‘Others’ to Roads and Railways
over the past decade even as the overall capex has consistently declined as a share
of central government revenues
One of the notable features of the centre’s capex as a share of government revenues
has been a consistent declining trajectory over the decades. Despite that, key
spending categories such as roads and railways have seen an increase, especially in
the past decade.
This is largely compensated by a decrease in the ‘Others’ category, which is
essentially the difference of capex as reported in the budget documents and the key
categories we identify above. Without debating whether this ‘Others’ spend is
productive or not (it may also be possible that some spending in the key categories is
routed through ‘Others’), we note that the ‘Others’ category spend as % of revenues
has already declined substantially and has been stabilizing at those levels for some
time now. Thus, the benefit, if any, of re-directing spending from ‘Others’ to the
more relevant categories of roads, railways has already materialized.
We believe that the overall capex trajectory will follow direct spending in the
relevant categories such as roads, railways and defence.
In a nutshell, even as the overall capex share in government revenues has declined
consistently, the decline in the ‘Others’ and defence categories has led to growth for
roads and railways. However, we have possibly now reached a point where further
such benefits for roads and railways may not be possible.
State infrastructure capex has stagnated, except for volatility around fiscal stress
episodes; transport, water and urban/rural development spending has gained
Unlike the central government’s capex/revenue, states’ capex/revenue has had a
volatile trend. The capex/revenue share has been stagnant rather than declining in
the long term. Transport, water supply, sanitation and urban/rural development
spending have consistently grown.
Arguably, water supply & sanitation and urban/rural development spending has also
grown, partially given the dedicated funding for some of these schemes by the
centre.
Irrigation and ‘Others’ categories have seen a decline in capex/revenue share while
the water, transport and urban/rural development categories have seen an increase.
Overall, we note that the volatility in state capex/revenue coincides with fiscal stress
episodes, suggesting a direct bearing on capex patterns at the state level.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 58
20 December 2021 India Infrastructure Sector
Exhibit 134: States’ infra capex picked up only from FY03 after Exhibit 135: As with the centre, states’ debt/revenue metric
a long-drawn stagnation; even after the pick-up, the overall worsened until FY04 even as infra capex picked up in FY03
CAGR from FY98-04 was 15%, in line with the long-term mean itself. Peak debt/revenue of 2.93x in FY04
60% (x)
3.1
50%
2.9
40%
2.7
30% 2.5
20% 2.3
2.1
10%
1.9
0%
1.7
-10% 1.5
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 59
20 December 2021 India Infrastructure Sector
Exhibit 138: A sharp dip in IEBR funding driven projects led to an overall dip in capex
growth in FY10; recovery started from FY11
25%
20%
15%
10%
5%
0%
-5%
FY07 FY08 FY09 FY10 FY11 FY12
Exhibit 139: States’ infra capex was also strong before the GFC Exhibit 140: …this again was largely due to the declining debt/
and recovered after the FY10 blip, though at a slower pace revenue trend for states
(x)
30% 2.4
25% 2.3
2.2
20% 2.1
2.0
15%
1.9
10% 1.8
1.7
5%
1.6
0% 1.5
FY07 FY08 FY09 FY10 FY11 FY12 FY07 FY08 FY09 FY10 FY11 FY12
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 60
20 December 2021 India Infrastructure Sector
Current scenario
The current scenario is much worse than during the GFC as key debt metrics are
inferior than that period and closer to the 1997-2003 slow down. Even after the GFC,
debt/revenue metrics for the centre and states were comfortable and trending
downward, unlike during 1997-2003 or now.
The debt/revenue metrics for the centre and states are likely to surpass the peak of
the 1997-2003 slowdown even without factoring in a counter-cyclical infrastructure
spending (unlike 2000-2004 when roads and railways spending received a push from
the centre).
India was rated ‘BB’ by S&P during 1998-2004 as its debt/revenue was uncontrollably
high. It would be a challenge for India to remain at the lowest investment grade of
‘BBB-’ (current rating) and at the same time indulge in a counter-cyclical
infrastructure spending driven stimulus to revive the economy.
Exhibit 141: Current trajectory for centre’s direct infra capex is on a Exhibit 142: …even though on debt/revenue metric, the centre will
decline; base normalization expected by FY23… exceed the FY02 peak of 6.8x and stabilize at 6.5x at least
(x)
40%
7.5
35%
30% 7.0
25% 6.5
20%
6.0
15%
5.5
10%
5% 5.0
0% 4.5
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: RBI, Budget documents, Systematix Research Source: RBI, Budget documents, Systematix Research
Exhibit 143: The current trajectory of states’ spending was already Exhibit 144: States’ debt/revenue metric is also likely to reach the
on a decline going into COVID-19; FY22E recovery is mostly FY04 peak of 2.9x even without a major infrastructure capex push
due to the low FY21E base than a real recovery
(x)
20% 2.7
15%
10% 2.5
5%
2.3
0%
-5% 2.1
-10%
-15% 1.9
-20%
1.7
-25%
-30% 1.5
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 61
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 62
20 December 2021 India Infrastructure Sector
• States may have to face the difficult choice of putting investment projects on
hold: Given the multiplier effect, this will inevitably entail growth losses in a
vicious circle feeding itself. As per the RBI, states tend to cut back their capital
expenditure by almost 0.5% of GDP, on average, to meet fiscal deficit targets. UP,
AP, Rajasthan, TN and Telangana have consistently missed capex targets (except
for transport, energy and housing, all other segments have consistently suffered).
Actual data from CAG shows that state infrastructure capex has been muted post
FY19 – down ~8% in FY20; growth of ~3% in FY21.
• States’ fiscal position will be further affected by a surge in guarantees:
Guarantees issued by state governments rose to as much as 3% of GDP (mainly
relating to Discoms). Historically, it is a precursor to an actual increase in debt.
Even post-UDAY, Discoms continue to impart a significant downside risk with no
visible signs of a turnaround. Farm loan waivers and income support schemes are
further curbing states’ ability to spend on infrastructure.
While capex invariably always falls short of the target, FY22 may see further capex
cut and re-prioritization of sectors within that
India’s capital spending is not entirely executed and often falls short of the budgeted
targets. States tend to cut back their capital expenditure by almost 0.5% of GDP, on
average, to meet the prescribed fiscal deficit targets. States may further see major
adjustments and re-prioritization within the sectors where they spend most of their
money.
While the obvious focus in FY21 seems to be on capex in health and education
sectors in response to the pandemic, other critical sectors like roads and
construction may draw attention in FY22.
Total capital outlay for top-10 infrastructure spending states already accounts for
more than their gross fiscal deficit
Over FY16-20, non-infrastructure spending outpaced infrastructure spending for all
states and union territories due to various social sector commitments. While
cumulative infrastructure spending has grown at a CAGR of 11% over FY16-20, non-
infrastructure capex has grown at a 16% CAGR during the same period.
We also note that the total capital outlay for most of the states exceeds or is close to
exceeding their gross fiscal deficit (GFD), suggesting limited headroom available for
further growth in capex unless the GFD comes down through other measures.
The composition of GFD for these states suggests that while a large part of the GFD is
attributed to the capital outlay, most states have a parallel revenue deficit which
tends to be sticky as it is almost impossible to control revenue spending (mostly
recurring expenses like staff salaries, interest payments). Thus, the GFD can remain
in control either by reducing the capital outlay or growth revival. While growth
revival may not be completely in the government’s control, the obvious hit has been
capex.
It further does not help that states’ GFD, as a percentage of states’ GDP, has been
going up across the board since FY18. As a share of state revenues, the GFD is on an
average at 22% in FY20, i.e., pre COVID-19 itself.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 63
20 December 2021 India Infrastructure Sector
Exhibit 146: Top-10 states based on Infra spending: Non-infra spend outpacing infra spend; total capital outlay almost equal to GFD
FY20RE Infra FY16-20 spend CAGR Fiscal Capital Capital Outlay/ Infra spend/
(Rs bn) spend Infra Non-Infra deficit Outlay GFD GFD
Uttar Pradesh 622 5% 7% 504 790 157% 123%
Maharashtra 337 19% 19% 786 463 59% 43%
Karnataka 280 19% -7% 388 369 95% 72%
Madhya Pradesh 235 13% 22% 327 292 89% 72%
Gujarat 223 6% -6% 271 272 100% 83%
Odisha 201 9% 5% 182 237 130% 110%
Telangana 67 -14% 40% 219 132 60% 30%
Tamil Nadu 238 13% 16% 551 312 57% 43%
Andhra Pradesh 72 -13% 33% 405 128 32% 18%
Rajasthan 144 -7% -7% 322 177 55% 45%
All States and UTs 3,944 11% 16% 6,524 5,308 81% 60%
Source: Systematix Research, RBI
Exhibit 147: GFD breakdown for top-10 states: Except UP, Odisha and Gujarat, most states have a revenue deficit too; GFD as a % of
state revenues is rising for all states
FY20RE Revenue Deficit/ Capital Gross Fiscal Revenue GFD as % of State revenues
(Rs bn) (Surplus) Outlay Deficit (GFD) Deficit/GFD FY19 FY20 FY21P
Uttar Pradesh -263 790 504 -52% 11% 14% 13%
Maharashtra 314 463 786 40% 8% 25% 16%
Karnataka -3 369 388 -1% 23% 22% 26%
Madhya Pradesh 27 292 327 8% 14% 22% 35%
Gujarat -11 272 271 -4% 19% 18% 21%
Odisha -62 237 182 -34% 10% 16% 14%
Telangana -1 132 219 0% 27% 20% 23%
Tamil Nadu 251 312 551 46% 27% 29% 27%
Andhra Pradesh 266 128 405 66% 31% 37% 30%
Rajasthan 280 177 322 87% 25% 21% 20%
All States and UTs 1,367 5,308 6,524 21% 18% 22% 19%
Source: Systematix Research, RBI
Despite past misses on budgeted spends, most states had still built optimistic
assumptions on capex for FY21 and missed it substantially
According to the RBI, overall spending by all states on infrastructure (housing, urban
development, water supply & sanitation, irrigation, energy and transport) grew at a
9% CAGR between FY16-20. The budgeted spending for FY20 and FY21 on these
categories for all the states suggests 17.8% and 7.1% YoY growth, respectively.
However, the actual data from the CAG shows that the state capex declined ~8% in
FY20 and grew just 3% in FY21.
• Of the top-10 states that account for over 70% of the total Infrastructure
spending by all states, only Madhya Pradesh had budgeted for a capex decline in
FY21. However, a major decline was actually reported by Uttar Pradesh (-18.2%),
Maharashtra (-21.2%) and Rajasthan (-7.1%).
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 64
20 December 2021 India Infrastructure Sector
-25%
-35%
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 65
20 December 2021 India Infrastructure Sector
Exhibit 150: States like UP, AP, Rajasthan, TN and Telangana have seen massive cuts in actual capex as against their budgeted spends
% YoY growth Actuals over BE Actuals over RE
RE/BE comparison with actuals FY17 FY18 FY19 FY17 FY18 FY19
Andhra Pradesh 13.0% -36.3% -21.4% -19.4% -2.5% -59.5%
Bihar -5.4% -6.9% -41.9% 2.9% -43.5% 3.7%
Gujarat -9.7% -1.5% -2.3% 9.5% -10.8% -13.4%
Karnataka 8.3% -5.7% 2.7% 3.6% -0.9% -2.0%
Madhya Pradesh -14.2% 4.4% 3.3% -7.8% 12.0% -4.6%
Maharashtra -11.3% -19.3% 7.9% 17.3% -8.0% 13.9%
Odisha 14.4% 6.0% -2.4% -1.8% -0.7% -3.1%
Rajasthan -24.7% -16.5% -22.1% -18.1% -4.9% -8.1%
Tamil Nadu 6.9% -22.7% -21.4% -11.2% -11.5% -6.9%
Telangana 35.9% -18.2% -20.4% -17.8% -3.2% 0.0%
Uttar Pradesh -1.7% -26.1% -17.0% 20.7% -31.3% 0.7%
West Bengal -35.6% 23.4% -2.1% -2.0% -0.1% 11.3%
Source: Systematix Research
Exhibit 151: States have consistently missed their budgeted capex spend to meet fiscal deficit targets; while transport, energy and
housing have been as per budgets, other segments have seen massive cuts consistently
% YoY growth Actuals over BE Actuals over RE
RE/BE comparison with actuals FY17 FY18 FY19 FY17 FY18 FY19
Water Supply and Sanitation -9.1% -11.5% -10.6% -3.6% -11.9% -5.6%
Housing 3.5% -6.0% -66.0% 4.4% -19.8% -62.9%
Transport -1.6% -9.2% 0.9% -0.9% -14.7% -7.5%
Urban Development -29.5% -25.8% -22.4% -20.6% -22.4% -23.4%
Irrigation -11.0% -20.3% -17.0% -6.0% -12.8% -15.5%
Energy 10.2% 4.5% -6.3% 15.4% -5.2% -20.1%
Rural Development -20.5% -29.6% -36.8% -7.4% -23.2% -33.2%
Total -6.3% -14.0% -14.6% -1.5% -14.0% -17.0%
Source: Systematix Research
Borrowing limits act as a soft constraint for states; capex will in turn be sacrificed
to maintain GFD within 4% of GDP
With borrowings financing about 90% of states’ fiscal deficit, on average, borrowing
limits under Article 293 (3) act as a soft constraint. Thus, as per RBI, given the
financing constraints, states’ combined GFD is likely to remain around 4% of GDP
with a bias tilted to the upside, higher than the budgeted 2.8% of GDP. As a result, in
a bid to contain the fiscal deficit, states end up curtailing capex.
State guarantees rise to as much as 3% of GDP (mostly relating to Discoms),
historically a precursor to actual debt increase
Historically, any large accretion to states’ outstanding guarantees has, in general,
been followed by an increase in debt. For example, state guarantees, which
increased prior to 2014, fell sharply thereafter, primarily driven by subsuming of
power sector guarantees into state government liabilities under the UDAY program.
However, since FY18, net accretion to guarantees has seen a significant jump. This
could be an early sign of future fiscal risks.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 66
20 December 2021 India Infrastructure Sector
Exhibit 152: Guarantees issued by states – historically, large guarantee accretion is a precursor to rising debt at the state levels as these
guarantees eventually get absorbed by the states
Guarantees outstanding Accretion during the year
(Rs trn) (% of GDP) (Rs trn) (% of GDP)
FY14 3.79 3.40 0.80 0.40
FY15 (UDAY year) 4.28 3.40 0.49 0.10
FY16 (UDAY year) 3.64 2.60 (0.64) (0.80)
FY17 3.12 2.00 (0.52) (0.60)
FY18 4.30 2.50 1.18 0.50
FY19 5.38 2.80 1.08 0.30
FY20P* 6.00 3.00 0.62 0.20
FY21** - - 0.90+ 0.42+
* Based on actual reported data for 20 states and last year's data for remaining
** As per fiscal package
Source: Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 67
20 December 2021 India Infrastructure Sector
Exhibit 153: Full impact of farm loan waiver yet to be provided for; may turn out to be a
recurring theme at the cost of infrastructure capex
(Rs bn)
1,000
900
800
700
600
500
400
300
200
100
0
FY15 FY16 FY17 FY18 FY19 FY20RE FY21BE To be
provided
for
Farm Loan Waiver
Exhibit 154: Farm loan waiver and income support schemes have accounted for as much as 20% of states’ infrastructure capex (Rs bn)
Year of Amount Amount Provided in the Budget
State
Announcement Announced FY15 FY16 FY17 FY18 FY19 FY20 RE FY21 BE
Andhra Pradesh FY15 240.0 40.0 7.4 35.1 36.0 8.8 - -
as % of State GDP - - -0.9 -0.1 -0.6 -0.6 -0.1 - -
Telangana FY15 170.0 42.5 42.5 29.6 40.2 - 60.0 62.3
as % of State GDP - - -1.0 -0.9 -0.6 -0.7 - -0.6 -0.6
Tamil Nadu FY17 52.8 - - 16.8 18.7 8.8 8.1 7.4
as % of State GDP - - - - -0.2 -0.2 -0.1 -0.0 -0.0
Maharashtra FY18 340.2 - - - 150.2 35.2 - -
as % of State GDP - - - - - -0.8 -0.1 - -
Maharashtra FY20 150.0 - - - 150.2 - 169.3 -
as % of State GDP - - - - - -0.8 - -0.6 -
Maharashtra FY21 70.0 - - - 150.2 - - 70.0
as % of State GDP - - - - - -0.8 - - -0.2
Uttar Pradesh FY18 363.6 - - - 211.0 37.3 5.4 3.2
as % of State GDP - - - - - -2.0 -0.2 -0.0 -0.0
Punjab FY18 100.0 - - - 3.5 42.4 20.0 20.0
as % of State GDP - - - - - -0.1 -0.8 -0.3 -0.3
Karnataka FY19 440.0 - - - 39.2 126.4 51.8 4.4
as % of State GDP - - - - - -0.4 -0.8 -0.3 -0.0
Rajasthan FY19 180.0 - - - 30.0 42.7 41.7
as % of State GDP - - - - - - -0.3 -0.4 -0.4
Madhya Pradesh FY19 365.0 - - - - - - -
as % of State GDP - - - - - - - - -
Chhattisgarh FY19 61.0 - - - - 32.5 49.8 -
as % of State GDP - - - - - - -1.1 -1.5 -
Jharkhand FY21 20.0 - - - - - - 20.0
as % of State GDP - - - - - - - - -0.5
Total - 2,552.6 82.5 49.9 81.5 498.8 321.6 407.1 228.9
As % to States' GDP 0.1 0.0 0.1 0.3 0.2 0.2 0.1
As % to States' expenditure 0.4 0.2 0.3 1.8 1.0 1.1 0.6
As % to States' Infra capex 4.7 2.4 3.3 19.5 11.0 11.9 5.8
Source: RBI, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 68
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 69
20 December 2021 India Infrastructure Sector
Direct monetization is only 57% of the NMP; balance proposed through the PPP
route
Accordingly, the cash proceeds to the government will be only Rs 3.4trn vs. the Rs
6trn headline proposed.
The key monetization routes outlined by the government for the identified assets are
1) The direct lease of assets for a finite timeline through InvIT, TOT, operate-
maintain-develop (OMD) agreements and 2) the PPP approach wherein the private
sector will deploy capex to develop the asset and run it for a finite life before
transferring it back to the government.
Under the PPP approach, there are no real/major monetary proceeds to the
government and yet it has been categorized under the NMP.
We segregate the assets identified for direct monetization and PPP and find that only
~57% of the total pipeline is proposed under the real monetization route.
Importantly, apart from roads and railways, most of the other identified assets are a
part of the central public sector enterprises (CPSEs), wherein the cash proceeds may
go to the respective PSUs rather than to the government, limiting the actual cash
proceeds to the government.
Exhibit 155: Sector-wise monetization pipeline over FY2022-25 – only ~57% of it is direct monetization
Sector/ asset Approach to monetization value Monetization plan (Rs bn)
Roads Market approach 1,602
Ports Capex approach 128
Airports Capex approach 208
Railway stations – Capex approach 763
Passenger trains – Capex approach 295
Private freight terminals – Capex approach 56
Railways
Railway colonies redevelopment – Capex approach 23
Track infrastructure under DFCCIL – Book value approach 202
Track, OHE – EV approach 187
Power generation Book value approach 398
Power transmission Market approach 452
Natural gas pipeline EV approach 245
Product pipeline EV approach 225
Sports stadium Capex approach 115
Warehousing Capex approach 289
Capex approach for Bharatnet fibre assets 263
Telecom
Market approach for tower assets 88
Mining Capex approach 287
Urban Housing redevelopment Capex approach 150
Total 5,976
Total of non-capex approach plans 3,399
Non-capex route monetization as proportion of total 57%
Source: Niti Aayog, Systematix Institutional Research; Note: Blue shaded area reflects proposed direct monetization route
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 70
20 December 2021 India Infrastructure Sector
Government’s method of arriving at an indicative value for the monetizable assets:
a) Market approach – based on comparable market transactions, such as per
kilometer of roads, per ckt km of transmission asset, per MW of generation
capacity.
b) Capex approach – PPP based models envisaging the capex investment by the
private sector.
c) Book value approach – considered in cases where information on comparable
market transactions or estimated capex investment is not available.
d) Enterprise value approach – considered for assets where information on the
existing revenue stream is available or can be reasonably projected based on
assumptions.
Exhibit 156: Roads, railways and power account for 67% of Exhibit 157: Annual phasing – FY23/24 loaded with the bulk of
proposed monetization monetization pipeline
Roads (Rs bn)
2% 2% 2% 2,000
3% Railways
4% Power transmission 1,800
27%
4% 1,600
Power generation
1,400
Telecom
5% 1,200
Warehousing
1,000
5% Mining 800
Natural gas pipeline 600
6% Product pipeline 400
Airports 200
7% Urban Housing redevelopment 0
25% FY22 FY23 FY24 FY25
Ports
8% Monetisation phasing
Sports stadium
Source: Niti Aayog, Systematix Institutional Research Source: Niti Aayog, Systematix Institutional Research
States have been the key drivers of infrastructure capex; centre to take the lead in
incremental capex driven by a sharp rise in IEBR (internal and extra budgetary
resources) funding
Exhibit 158: The share of IEBR funding rising to 50% of overall Exhibit 159: Direct asset monetization proceeds to fund almost
centre capex 20% of the centre’s infrastructure capex by FY25E
4,500 1,200 20%
4,000
1,000
3,500 15%
800
3,000
Rs bn
2,000 400
1,500 5%
200
1,000
0 0%
500
FY22E FY23E FY24E FY25E
0 Direct Asset Monetisation
FY16 FY17 FY18 FY19 FY20P FY21E FY22E FY23E FY24E FY25E Direct monetisation as % of Total Infra capex (RHS)
States Centre IEBR Direct monetisation as % of Centre Infra capex (RHS)
Source: Niti Aayog, Systematix Institutional Research Source: Niti Aayog, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 71
20 December 2021 India Infrastructure Sector
Roads: Rs 1.6trn of proposed monetization covers practically all potential assets
and is 10x past 3 years’ cumulative monetization
While roads is the largest sector in the NMP (27% of overall plans and 47% of direct
monetization plans), the monetization target of Rs 1.6trn from this sector seems
aggressive.
The aggregate length of assets considered for monetization over FY22-25E is
~26,700km. This is based on the length of all operational or to-be operational four-
lane highways and above in the country. Highways that will become operational over
the NMP period have also been considered part of the monetizable asset base. To
illustrate, as of Mar-20, the length of toll roads under the public-funded/annuity
mode was ~16,387km.
Exhibit 160: NMP effectively proposes to monetize all potential four-lane roads,
thereby leaving no scope for future monetization (except for new additions post FY25E)
Potential Asset base (Kms) 136,155
of which, 2 lane Kms 66,716
of which, 4 lane Kms 31,067
<2 lanes 38,372
Asset length to be monetized 26,700
Monetizable length as % of total base excluding private BOT Toll 22%
Monetizable length as % of 4 lane base 86%
Potential Asset base excluding private BOT Toll (Kms) 121,155
Length under public-funded/ annuity mode 16,387
Monetizable length as % of existing 4 lane roads excluding private BOT 163%
Anticipated addition of monetizable roads over FY20-25 10,313
Anticipated addition of monetizable roads p.a. over FY20-25 2,063
Source: Niti Aayog, Systematix Institutional Research
The multiple (in Rs mn per km) used to estimate the indicative value is based on the
average blended factor at Rs 60mn/km. The estimate has been arrived at based on 1)
the recent TOT transactions, 2) asset mix to be monetized and 3) the scale of
monetization.
Exhibit 161: Indicative value of Roads Monetization pipeline
(Rs bn) (Kms)
600 10,000
9,000
500 8,000
400 7,000
6,000
300 5,000
4,000
200 3,000
100 2,000
1,000
0 0
FY22 FY23 FY24 FY25
Roads Monetisation phasing by value
Roads Monetisation phasing by length (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 72
20 December 2021 India Infrastructure Sector
As against Rs 675bn of road assets monetized till date by private companies as well
as NHAI (of which, NHAI is just Rs 170bn), the proposal to monetize Rs 1.6trn of road
assets is ~3x the total monetization so far and ~10x the NHAI monetization till date.
Exhibit 162: Roads monetized so far by NHAI (until FY21) is just 5.3% by length and
10.6% by value of the proposed monetization over FY22-25E
Bundle Date Length (Kms) Value (Rs bn) Rs mn/Km
TOT Bundle 1 Aug-18 682 97 142
TOT Bundle 2 Feb-19 586 Bid cancelled
TOT Bundle 3 Nov-19 566 50 89
TOT Bundle 4 Sep-20 401 Bid cancelled
TOT Bundle 5A-1 Jan-21 54 10 187
TOT Bundle 5A-2 Jan-21 106 13 118
Total so far 1,408 170 120
Proposed NHAI InviT Sep-21 586 50 85
Source: Niti Aayog, Systematix Institutional Research
Exhibit 163: Total assets monetized via the InvIT route (in the past 4 years) so far adds up to Rs 1.3trn, of which road assets are Rs
505bn; against this, the proposed monetization by NMP is Rs 1.6trn over FY22-25E
Assets under
InvIT Sector Public/Private Listing month
Management (Rs bn)
IRB InvIT Fund – IRB Toll roads Public May-17 65
India Grid Trust – Sterlite Power Transmission Public Jun-17 150
IndInfravit Trust – L&T IDPL Roads Private Jun-18 105
India Infrastructure Trust – Brookfield Gas pipeline Private Mar-19 145
Oriental Infra Trust – Oriental Structural Engineering Toll roads Private Jun-19 110
IRB Infrastructure Trust Toll roads Private Feb-20 225
Tower infrastructure Trust – Reliance & Brookfield Telecom towers Private Sep-20 420
Digital Fibre Infrastructure Trust Fibre Optic Private Oct-20 15
Powergrid InvIT Power Transmission Public May-21 78
Total InvIT AUM in India 1,313
of which, Road based 505
Source: Niti Aayog, Systematix Institutional Research
Railways: Of the ~Rs 1.53trn of proposed assets for monetization, only ~Rs 0.4trn is
direct monetization
Almost 50% of the railways monetization hinges upon station redevelopment
through PPP, which hasn’t taken off for almost half a decade now.
The bulk of the monetization plans in railways (including station redevelopment) is
planned under the PPP route, even as the redevelopment of 400 stations proposed
5-6 years ago is yet to take off in a meaningful way (due to execution and clearance-
related challenges).
Further, for assets such as Konkan Railway, there are multiple stakeholders already,
including state governments. Hence, the existing shareholder interests need to be
managed effectively before shaping the monetization transaction structure.
Tracks and overhead Electric wires (OHE) is expected to contribute ~Rs 187bn in
monetization proceeds even though the existing track infrastructure is largely for
exclusive and captive use of Indian Railways operations, and at present, there is no
concept of apportionment of a track access charge towards a specific use of tracks. A
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 73
20 December 2021 India Infrastructure Sector
monetization mechanism will thus need to be structured, covering infrastructure
access and usage agreement along with ring-fencing a track access charge-based
revenue regime.
For Private Passenger Trains, bidding for 150 trains is presently underway and the
project is expected to be awarded in FY22 – any scale-up will be contingent upon
successful award and experience from the current batch of PPP clusters.
Exhibit 164: Segment-wise annual phasing of the proposed railways assets
monetization; railway station development plans are optimistic
Railway assets to be monetized (Rs bn) FY22 FY23 FY24 FY25 Total
Railway station development (Nos) 170 293 176 124 763
Passenger train operations (PTO) (Nos) - 70 72 74 216
Track – OHE InvIT (Kms) - 187 - - 187
Good Sheds (Nos) - 16 21 19 56
Konkan Railway (Kms) - - 73 - 73
Hill Railways (Nos) 5 2 - - 6
Dedicated Freight Corridor (Kms) - - 101 101 202
Railway Colonies (Nos) 4 5 7 8 23
Total 178 572 449 326 1,525
Source: Niti Aayog, Systematix Institutional Research, Note: Blue shaded row highlights assets earmarked for
direct monetization, while the remaining are via PPP
As the following table depicts, monetization plans for the Railways segment consist
of several small assets to be bunched together (or even individually) but hitherto lack
a proper revenue-generating model. The IR has just begun with the concept of
private passenger trains but without a proper regulatory mechanism as it currently
operates as an operator, competitor as well as owner and regulator of the assets,
thereby posing significant scale-up risks for the PPP model.
Goods sheds may be in for a strong demand given their strategic locations, however,
successful execution of PPP in that segment will be strewn with challenges at a local
level.
Exhibit 165: Railways assets planned to be monetized (in numbers)
Overall Existing Proportion of overall
Railway assets to be monetized FY22 FY23 FY24 FY25 Total
assets existing assets
Railway station development (Nos) 40 120 120 120 400 7,325 5.5% of all stations
Passenger train operations (PTO) (Nos) - 30 30 30 90 13,169 5% of total trains
Track – OHE InvIT (Kms) - 1,400 - - 1,400 67,956 2% of network
21% of total good
Good Sheds (Nos) - 75 100 90 265 1,246
sheds
Konkan Railway (Kms) - - 741 - 741
Hill Railways (Nos) 2 2 - - 4 5
20% of total DFC
Dedicated Freight Corridor (Kms) - - 337 337 674 2,843
network
Railway Stadiums (Nos) 3 5 5 2 15
Railway Colonies (Nos) - - - - -
Source: Niti Aayog, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 74
20 December 2021 India Infrastructure Sector
Exhibit 166: Annual phasing of proposed Railways assets monetization
(Rs bn)
700
600
500
400
300
200
100
0
FY22 FY23 FY24 FY25
Annual phasing of railway monetisation plan
160 12,000
140
10,000
120
8,000
100
80 6,000
60
4,000
40
2,000
20
0 0
FY22 FY23 FY24 FY25
Value Assets (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 75
20 December 2021 India Infrastructure Sector
Exhibit 168: Power Transmission assets planned to be monetized
Total transmission asset base (cKm) 413,407
Assets owned by PGCIL (cKm) 168,140
of which, 400kv and above (cKm) 156,370
of which, regulated assets (cKm) 159,733
Asset base proposed for monetization (cKm) 28,608
Indicative value (Rs bn) 452
Source: Niti Aayog, Systematix Institutional Research
2,500
150
2,000
1,500 100
1,000
50
500
0 0
FY22 FY23 FY24 FY25
Hydro assets–existing RE assets – existing
Hydro assets – to be operational RE assets – to be operational
Monetisation value (RHS)
Source: Niti Aayog, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 76
20 December 2021 India Infrastructure Sector
FY16
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY21 EE
FY20 EE
FY22 EE
FY23 EE
FY24 EE
FY25 EE
FY26 EE
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 77
20 December 2021 India Infrastructure Sector
Exhibit 171: State infrastructure spending has stagnated post FY19
(Rs tn)
4 30%
20%
3
10%
2 0%
-10%
1
-20%
0 -30%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20 EE
FY21 EE
FY22 EE
FY23 EE
FY24 EE
FY25 EE
FY26 EE
Transport Irrigation
Water Supply and Sanitation Rural Development
Urban Development Housing
YoY growth (RHS)
Source: Systematix Research, India Budget, RBI
YTDFY22
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Oct-19
Dec-19
Apr-20
Dec-20
Apr-21
Feb-20
Jun-20
Oct-20
Aug-19
Aug-20
Jun-21
Oct-21
Aug-21
Feb-21
Monthly run-rate Centre Infra capex YoY growth (RHS) TTM Centre Infra capex YoY growth (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 78
20 December 2021 India Infrastructure Sector
Exhibit 174: State capex has improved from the bottom… Exhibit 175: …and turned sharply positive on a TTM basis in Sep’21
(Rs bn) (Rs bn)
1,000 5,000 50%
900
4,500 40%
800
700 4,000 30%
600 20%
3,500
500 10%
400 3,000
0%
300 2,500 -10%
200
100 2,000 -20%
0 1,500 -30%
Dec-18
Dec-14
Dec-15
Dec-16
Dec-17
Dec-19
Dec-20
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-14
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Sep-15
Sep-19
Sep-16
Sep-17
Sep-18
Sep-20
Sep-21
Monthy State Capex 12 per. Mov. Avg. (Monthy State Capex ) TTM State Capex YoY growth (RHS)
Source: Projects Today, Systematix Research Source: Projects Today, Systematix Research
Exhibit 176: For Oct’21, published tenders were up 53% YoY… Exhibit 177: …while TTM tenders were ~8% below FY19 levels
(Rs bn) (Rs bn)
1,200 300% 12,000 80%
250% 60%
1,000 10,000
200%
40%
800 8,000
150%
20%
600 100% 6,000
0%
50% 4,000
400 -20%
0%
200 2,000 -40%
-50%
0 -100% 0 -60%
Aug-17
Jun-18
Dec-15
May-16
Mar-17
Dec-20
May-21
Oct-16
Apr-19
Oct-21
Jan-18
Nov-18
Jul-20
Feb-15
Jul-15
Sep-19
Feb-20
Apr-19
Apr-20
Apr-21
Dec-19
Dec-20
Jun-19
Aug-19
Oct-19
Jun-20
Aug-20
Oct-20
Jun-21
Aug-21
Oct-21
Feb-20
Feb-21
Tender value YoY growth (RHS) TTM tenders YoY growth (RHS)
Source: Projects Today, Systematix Research Source: Projects Today, Systematix Research
Exhibit 178: For Oct’21, project awards were down 54% YoY Exhibit 179: …while TTM orders are up 67% YoY
(Rs bn) (Rs bn)
1,400 350% 6,000 120%
1,200 300% 100%
250% 5,000
80%
1,000
200% 4,000 60%
800 150% 40%
3,000
600 100% 20%
50% 2,000 0%
400
0% -20%
200 1,000
-50% -40%
0 -100% 0 -60%
Apr-19
Apr-20
Apr-21
Dec-19
Dec-20
Jun-19
Aug-19
Oct-19
Jun-20
Aug-20
Oct-20
Jun-21
Aug-21
Oct-21
Feb-20
Feb-21
Apr-14
Apr-19
May-16
Dec-15
Mar-17
Dec-20
Aug-17
May-21
Feb-15
Oct-16
Oct-21
Jan-18
Jun-18
Nov-18
Sep-14
Jul-15
Sep-19
Feb-20
Jul-20
Award value YoY growth (RHS) TTM awards YoY growth (RHS)
Source: Projects Today, Systematix Research Source: Projects Today, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 79
20 December 2021 India Infrastructure Sector
FY18
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
-40%
FY16
FY18
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY19
FY20
FY21
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research, Bloomberg
Exhibit 182: Most road companies have witnessed a margin Exhibit 183: …except DBL and PSP Projects
expansion…
EBITDA (EBITDA
(margin) margin)
25% 30%
20% 25%
15% 20%
15%
10%
10%
5%
5%
0%
0%
FY13
FY21
FY07
FY08
FY09
FY10
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
While RoE and RoCE may not be the best measures of efficiency for construction
companies, given that these companies tend to be asset-light at times, they are
reasonable filters for relative performance. On that count, while the larger players
have struggled to maintain their RoE/RoCE, smaller players such as PNCL/KNRC have
done better as they chose to stick to their core expertise and divest BOT/HAM
assets.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 80
20 December 2021 India Infrastructure Sector
Exhibit 184: PNCL/KNRC/Ashoka have done better on RoCE… Exhibit 185: …against NJCC/Sadbhav/DBL/PSP
(%) (%)
45
60
40
35 50
30 40
25
20 30
15 20
10
10
5
0 0
-5
-10
FY09
FY13
FY07
FY08
FY10
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY07
FY12
FY17
FY08
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
KNR Constructions PNC Infratech Ashoka Buildcon
GR Infra HG Infra NCC Dilip Buildcon Sadbhav Engineering PSP Projects
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research, Bloomberg
Beyond the traditional growth and return ratios, cash generation is a key metric for
assessing how construction companies fare. As the charts below depict, KNRC/PNCL
are the only companies in the roads space that have demonstrated consistent
OCF/FCF (post interest expense) over FY14-19.
Thus, companies with strong balance sheets and smaller ambitions are a better bet
against large, diversified conglomerates with high aspirations, as they are
deleveraged, have a demonstrated history of FCF, are better managed and will likely
fare better in the upcoming awards as well.
As against PNCL/KNRC, we notice that most companies have struggled to generate or
maintain a consistent OCF/FCF pattern, mostly due to unrelated diversification and
aggressive growth campaigns.
Exhibit 186: PNCL/KNRC are the only road names to generate Exhibit 187: …while NJCC/DBL/Ashoka/Sadbhav have had a patchy
consistent OCF (ex-interest expense)…. track record
(Rs mn)
(Rs mn)
8,000
8,000
7,000
6,000 6,000
5,000
4,000
4,000
3,000 2,000
2,000
0
1,000
0 -2,000
-1,000
-4,000
-2,000
FY09
FY10
FY11
FY12
FY13
FY07
FY08
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
-6,000
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research, Bloomberg
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 81
20 December 2021 India Infrastructure Sector
Exhibit 188: PNCL/KNRC come out the best on FCF (ex-Interest Exhibit 189: …while, NJCC/DBL/Sadbhav have disappointed
expense) as well…
(Rs mn) (Rs mn)
8,000 8,000
6,000
6,000
4,000
4,000 2,000
0
2,000 -2,000
-4,000
0
-6,000
-2,000 -8,000
-10,000
-4,000 -12,000
FY11
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY07
FY10
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
KNR Constructions PNC Infratech GR Infra
NCC Dilip Buildcon Ashoka Buildcon Sadbhav Engineering
HG Infra PSP Projects
Source: Company, Systematix Research, Bloomberg Source: Company, Systematix Research, Bloomberg
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 82
20 December 2021 India Infrastructure Sector
Exhibit 191: Sector book: bill ratio has been on an uptrend but highly cyclical
(x)
4.0
3.2
2.4
1.6
0.8
0.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Book to bill ratio
Source: Systematix Research, Industry
100% 100%
90% 90%
80% 80%
70% 70%
60%
60%
50%
40% 50%
30% 40%
20% 30%
10% 20%
0% 10%
FY16 FY17 FY18 FY19 FY20 FY21 0%
AP & Telangana Tamil Nadu Karnataka FY16 FY17 FY18 FY19 FY20 FY21
Kerala Arunachal Pradesh Madhya Pradesh Roads Irrigation Others
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 83
20 December 2021 India Infrastructure Sector
Exhibit 194: KNRC state-wise projects executed in the past Exhibit 195: Majority of PNCL’s projects have been in
five years UP/Maharashtra
Exhibit 196: Dilip Buildcon’s order book thinly spread Exhibit 197: …even as its prime focus remains road; it has also
across multiple states… delved into airports, irrigation and mining
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Maharashtra Karnataka UP AP MP Roads & Bridges Airport Tunnel
Goa Telangana Jharkhand Rajasthan Gujarat
Metro Irrigation Mining
Odisha West Bengal Punjab Chhattisgarh Haryana
Tamil Nadu Uttarakhand Bihar Urban development
Source: Company, Systematix Research Source: Company, Systematix Research
Exhibit 198: NJCC has a diverse presence across buildings & Exhibit 199: …while geographically, it has been active across
factories, roads, water/irrigation, railways and others… several states with a prime focus on AP/Telangana
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Dec-15 Sep-16 Dec-17 Dec-18 Dec-19 Mar-21 Dec-17 Dec-18 Dec-19
Buildings Roads Water & railways Maharashtra Telangana Gujarat Tamil Nadu
Karnataka Chhattisgarh AP UP
Electrical Irrigation Mining
Jharkhand New Delhi Punjab Bihar
Others International Kerala
Source: Company, Systematix Research Source: Company, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 84
20 December 2021 India Infrastructure Sector
Exhibit 200: L&T has a diverse presence across buildings & factories, Exhibit 201:…while client-wise private share has come off and
transport/heavy civil, water/irrigation, hydrocarbons and others… state share has gone up recently
15% 10%
80%
60%
0% Private/International
FY16 FY17 FY18 FY21E
42%
Oil & Gas Power Others
Transport/Heavy Civil Urban Infra/B&F Water
Electrical T&D/Others
Source: Company, Systematix Research Source: Company, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 85
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 86
20 December 2021 India Infrastructure Sector
Exhibit 204: L&T – Core E&C value has declined in the past 2.5 Exhibit 205: Core E&C growth to revive but at a slower pace
years, while tech businesses have created value for its shareholders
(Rs/share) (Rs bn)
2,500 1,400 25%
2,000 1,200 20%
1,500 15%
1,000
1,000 10%
800
500 5%
600
0%
0
400
-5%
-500
Mar-19 Mar-20 Mar-21 Dec-21 200 -10%
Value of core E&C and others L&T Infotech 0 -15%
Mindtree LTTS FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
L&T Finance Holdco discount
L&T share price Core E&C value as of Mar-19 Core E&C revenues YoY growth (RHS)
Exhibit 206: KNRC is trading above its long-term mean P/E; we Exhibit 207: … perhaps the only construction company to generate
still like it due to its proven cautious strategy and as it is … positive OCF/FCF consistently over the past 10 years
(Rs bn)
25
6
20 5
4
15
3
10 2
1
5 0
-1
0
-2
Oct-11
Nov-21
Dec-09
Nov-10
Apr-17
Dec-20
Feb-08
Jun-15
Jul-14
Sep-12
Feb-19
Aug-13
May-16
Mar-18
Jan-09
Jan-20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
1year forward P/E (x) Average PE OCF - Net Interest expense FCF - Net Interest expense
Exhibit 208: PNCL trading at close to mean valuations… Exhibit 209: …with a reasonable track record of positive OCF/FCF
25 (Rs bn)
8
20
6
15 4
10 2
5 0
-2
0
Sep-17
Sep-15
Sep-16
Sep-18
Sep-19
Sep-20
Sep-21
May-17
May-15
May-16
May-18
May-19
May-20
May-21
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
-4
FY21E
FY14
FY22E
FY23E
FY13
FY15
FY16
FY17
FY18
FY19
FY20
1year forward P/E (x) Average PE OCF - Net Interest Expense FCF - Net Interest Expense
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 87
20 December 2021 India Infrastructure Sector
Exhibit 210: NJCC trading at a significant discount to long-term Exhibit 211: …worst seems behind; it is likely to have negligible
mean valuations… levels of debt by FY24E
50 30,000 1.2
45
40 25,000 1.0
35
30 20,000 0.8
25
15,000 0.6
20
15 10,000 0.4
10
5 5,000 0.2
0
Nov-10
Jul-14
Jun-15
Nov-21
Dec-09
Dec-20
Oct-11
Apr-06
Feb-08
Sep-12
Apr-17
Feb-19
Mar-07
Aug-13
May-16
Mar-18
Jan-09
Jan-20
- 0.0
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
1year forward P/E (x) Average PE Net debt (Rs bn) Net D/E (x) RHS
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 88
20 December 2021 India Infrastructure Sector
COMPANIES SECTION
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 89
Systematix
Institutional Equities
Jan-21
Feb-21
Jun-21
Mar-21
Apr-21
May-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Key risks
LT SENSEX
1) Continued delay in execution in the core E&C business; 2) Potential margin impact
due to the sharp commodity price rise in the recent past; 3) Slowdown/de-rating or
increase in the holdco discount for its tech subsidiaries.
Amar Kedia
amarkedia@systematixgroup.in
+91 22 6619 8084
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 90
20 December 2021 Larsen & Toubro
Story in charts
Exhibit 1: Infrastructure segment order backlog growth has picked Exhibit 2: …while execution has been slower; though, this bodes
up in the past 12 months… well for a pick-up in execution from hereon
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 3: Core E&C orders to grow at a CAGR of 11% between FY21-23 vs. 6% between
FY14-20
Exhibit 4: Execution cycle for the current order mix to stabilize Exhibit 5: Annual order inflow for key segments - infrastructure &
hydrocarbon have replenished annual execution
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 91
20 December 2021 Larsen & Toubro
Exhibit 6: Core E&C revenue growth to mirror industry growth… Exhibit 7: …while core E&C margins should do better on
improving trends and mix
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 8: Order backlog continues to grow despite the slow order Exhibit 9: Overall book: bill ratio remains healthy with core E&C
inflow growth book: bill ratio at 3.7x
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 10: Core E&C value has declined in the past 2.5 years, while tech businesses have
created value for L&T shareholders
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 92
20 December 2021 Larsen & Toubro
Exhibit 11: Tech and finance subsidiaries now account for ~30% Exhibit 12: …contribution to increase to 50% of consolidated EBITDA
of consolidated revenues…
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 13: Bulk of the consolidated operating cash flow (OCF) Exhibit 14: …as standalone OCF has averaged only around 40%
driven by tech subsidiaries…
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 93
20 December 2021 Larsen & Toubro
Company background
Larsen & Toubro is a technology, engineering, construction, manufacturing and
financial services conglomerate, with global operations. It addresses critical needs in
key sectors - Hydrocarbon, Infrastructure, Power, Process Industries and Defence - for
customers in over 30 countries. The company is engaged in core, high impact sectors
of the economy and accordingly has significant dependence on the government and
private sector capex. As of Sep-2021, L&T’s order book split according to customers
was 33% from state governments, 10% from central government, 42% from PSUs,
while the remaining from private sector/international clients. Of these, ~31% of the
projects were funded partially or largely by bilateral/multilateral funding agencies.
Exhibit 16: L&T’s business structure
Products
Infrastructure: Buildings & factories, transportation infra, heavy civil infra, water
& effluent treatment, power T&D, metal & material handling.
Power: EPC for thermal power plant, electrostatic precipitator, power equipment
manufacturing
Heavy Engineering: Process plant equipment, nuclear power plant, equipment
piping centre & forgings
Defence Engineering: Defence, aerospace, shipbuilding
Hydrocarbon: Onshore, offshore
Developmental Projects: Roads/transmission line, metros, power
IT & TS: Information technology, technology services
Financial Services: Rural lending, housing finance, wholesale finance, asset
management
Others: Realty, industrial products & machinery, smart world & communications
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 94
20 December 2021 Larsen & Toubro
Exhibit 17: L&T’s segment composition
Exhibit 18: Order book split by verticals as of Sep’21 Exhibit 19: Revenue split by verticals as of FY21
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 95
20 December 2021 Larsen & Toubro
Exhibit 20: Order book split by geography as of Sep’21 Exhibit 21: Revenue split by geography as of FY21
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 96
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 97
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 98
20 December 2021 Larsen & Toubro
The volatility in crude prices due to political and economic L&T received an approval from the Revenue growth 18%
crosscurrents led to reduced investments in OPEC regions. Competition Commission of India (CCI) EBITDA growth 32%
Having proactively readied itself for such an eventuality, the for divestment of its Electrical &
Automation business, subject to PAT growth 20%
company forayed into select African countries, Bangladesh
and Sri Lanka. This sustained drive over the last few years compliance to certain conditions. Standalone Debt/Equity 0.24
has started yielding results, with non-Middle East business L&T Metro Rail (Hyderabad) Limited Consolidated ROE 15%
contributing to around 45% of the international order book. commissioned an additional 26 km
stretch of metro rail network during the FCF (Rs bn) 57
FY19
On the strength of wide-ranging digital transformations year. Order backlog (Rs bn) 2,934
achieved successfully within the L&T group, it launched a
Order inflow (Rs bn) 1,768
new strategic initiative ‘L&T-NxT’. Leveraging the domain
expertise of L&T across diverse industry segments, L&T-NxT
targets building a business using new-age technologies, such
as IoT, digitalization and analytics, Artificial Intelligence,
Augmented/Virtual Reality, Geo-spatial applications and
Cyber Security.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 99
20 December 2021 Larsen & Toubro
Key performance
Year Demand scenario & Outlook Key events
indicators
With the onset of the COVID-19 pandemic, businesses in the During the year, L&T acquired a majority Revenue growth 8%
IT and Technology Services segment, which could transition stake in Mindtree. EBITDA growth 6%
with relative ease to a ‘work from home’ environment, grew
Shareholding in L&T Infrastructure PAT growth 10%
significantly, aided by the inclusion of revenues from an
Development Projects Ltd (L&T IDPL) was
acquisition made in FY20. Standalone Debt/Equity 0.49
diluted to 51% as Canadian Pension Plan
Going forward, L&T is confident that the contribution of the Investment Board obtained statutory Consolidated ROE 15%
services businesses will exceed 40% of Group turnover. approvals for conversion of the FCF (Rs bn) 28
Compulsorily Convertible Preference
The Financial Services business registered modest growth Order backlog (Rs bn) 3,039
Shares (CCPS) into a 49% equity stake in
while grappling with tight liquidity constraints, stoppage of L&T IDPL. L&T Shipbuilding Limited which Order inflow (Rs bn) 1,928
FY20
disbursements in end-March and the dominant risk-averse was a 100% subsidiary company was
sentiment of the lending community. The impact of the merged with L&T standalone entity. Also,
pandemic and additional provisions in the Financial Services during the year, L&T exited its
business led to a depressed RoE for FY20. shareholding in L&T Kobelco Machinery
L&T sees prospects in the areas of government buildings, by selling its stake to its JV partner Kobe
data centres, healthcare infrastructure, airports, metro Steel Ltd.
railways, water projects including wastewater treatment
and irrigation, hydel projects, expressways as well as
onshore and offshore hydrocarbon projects. It is, however,
uncertain of the timelines when these projects will take off.
The decline in revenues during FY21 was mainly due to the Secured multiple large and prestigious Revenue growth -7%
slowdown of project execution and manufacturing activity orders during the year, viz., the Mumbai-
EBITDA growth -7%
owing to lockdown-related disruptions in the first half of the Ahmedabad High Speed Rail (popularly
year. called the ‘Bullet Train’), a bridge across PAT growth -26%
the Brahmaputra in Assam as well as Standalone Debt/Equity 0.39
While the Middle East region has remained an area of focus,
EPCC packages for the Barmer Refinery in
the company has turned its attention to many countries in Consolidated ROE 16%
Rajasthan.
Africa as well as South-East Asia. Currently, the Middle East
region constitutes 61% of the international order book of Rs During the year, L&T concluded the FCF (Rs bn) 172
688bn. divestment of its Electrical & Automation Order backlog (Rs bn) 3,274
(E&A) business, including the sale of the
The new norms of social distancing, quarantine procedures integrated marine automation solutions Order inflow (Rs bn) 1,777
FY21
and safety protocols, coupled with supply chain disruptions, company, Servowatch Systems Limited.
continued to impact the project performance throughout
the year.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 100
20 December 2021 Larsen & Toubro
Exhibit 24: Apart from its prowess in the infrastructure segment, it has strong capabilities in the hydrocarbon sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 101
20 December 2021 Larsen & Toubro
Exhibit 25: Has expanded outside India and made its presence felt in marquee jobs
Exhibit 26: Is one of the largest integrated E&C companies globally with capabilities across all segments of infrastructure/industrial capex
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 102
20 December 2021 Larsen & Toubro
Exhibit 27: Has grown through need-based collaborations as per technological and geographical requirements
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 103
20 December 2021 Larsen & Toubro
Investment Analysis
Infrastructure sector ordering is past its medium-term peak but book: bill
ratio at 3.6x is still robust
The infrastructure segment is the largest business segment for L&T, contributing
almost 45% to its FY21 revenues. As of Sep’21, L&T had an order backlog of Rs 3.3trn,
which is ~3.6x its core E&C revenues in FY21, thus providing reasonable revenue
visibility in the near-term.
We have argued earlier about an imminent slowdown in government-funded
infrastructure capex over FY21-26E as the government’s debt overhang is not transient
and may haunt till FY26E. We estimate combined (Center and States) government
infrastructure spending CAGR of 11.4% over FY21-26E (vs. 19.4% over FY13-19).
The slowdown directly impacts growth opportunities for L&T. For example, as of
Sep’21, the company carries 38% of its order backlog from states, 14% from centre
and 30% from PSUs.
Exhibit 28: Revenue share of infrastructure has risen to ~70% Exhibit 29: …with ~80% share in its order backlog
within L&T’s core E&C business…
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 30: >80% of order backlog is dependent on the central and Exhibit 31: …as contribution from the private sector orders is still
state governments… elusive
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 104
20 December 2021 Larsen & Toubro
Exhibit 32: Heavy civil (metro/rail), water and T&D have been the key drivers of order
growth in the infrastructure segment over the years, while B&F has shrunk
Exhibit 33: Infrastructure segment order backlog growth has picked Exhibit 34: …while execution has been slow, this bodes well for an
up in the past 12 months execution pick up from hereon
Source: Bloomberg; Company, Systematix Institutional Research Source: Bloomberg; Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 105
20 December 2021 Larsen & Toubro
Revival in private capex cycle will be the key trigger but currently elusive
Without arguing about a case for private capex cycle revival, we highlight that L&T’s
dependence on private capex has reduced to the point that its revival or the lack of it
does not impact it much.
To illustrate (Exhibit 35), during FY06-11, the share of private capex in L&T’s annual
order inflow used to be 50-70%, with power and hydrocarbons being the largest
contributors and metals being the other important sector.
It is now a foregone conclusion that the power sector will not witness a capex boom
in the coal-fired category for the near future. Hydrocarbon has held on to its share in
the overall BSE500 capex but the long-term trajectory is still downward. The metal
sector as a share of L&T’s order inflow has now gone into oblivion.
Exhibit 35: Share of private capex used to be 50-70% in L&T orders until FY11
Sector-wise Order Inflows (Rs bn) FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Process 22 43 63 83 91 128 78 53
Oil & Gas 58 46 105 62 139 56 93 88
Power 22 37 59 130 230 255 148 264
Infrastructure 67 129 130 202 188 303 324 396
Overall core order inflow 170 254 357 477 647 742 643 801
% share in core order inflow FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Process 13% 17% 18% 17% 14% 17% 12% 7%
Oil & Gas 34% 18% 29% 13% 22% 8% 14% 11%
Power 13% 14% 16% 27% 35% 34% 23% 33%
Infrastructure 39% 51% 36% 42% 29% 41% 50% 49%
Share of ex-Infra orders (pvt capex) 61% 49% 64% 58% 71% 59% 50% 51%
Source: Company, Systematix Institutional Research
Exhibit 36: Share of private capex is now down to ~20% in L&T orders
Sector-wise Order Inflows (Rs bn) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Process 30 60 37 40 25 40 60 75
Oil & Gas 90 90 104 185 158 279 210 177
Power 30 150 30 30 25 29 120 10
Infrastructure 810 720 748 690 755 927 1,004 1,002
Overall core order inflow 960 1,170 1,044 1,095 1,138 1,346 1,441 1,325
% share in core order inflow FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Process 3% 5% 4% 4% 2% 3% 4% 6%
Oil & Gas 9% 8% 10% 17% 14% 21% 15% 13%
Power 3% 13% 3% 3% 2% 2% 8% 1%
Infrastructure 84% 62% 72% 63% 66% 69% 70% 76%
Share of ex-Infra orders (pvt capex) 16% 26% 16% 23% 18% 26% 27% 20%
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 106
20 December 2021 Larsen & Toubro
Exhibit 37: Metals capex peaked in FY14 and has been declining Exhibit 38: …while hydrocarbon capex has been steadily improving
Rs bn
400
20% 600 20%
300
200 0% 400 0%
100 -20% 200 -20%
- -40% - -40%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Metals % y-y growth Linear (% y-y growth) Hydrocarbons % y-y growth Linear (% y-y growth)
Source: Bloomberg; Company, Systematix Institutional Research Source: Bloomberg; Company, Systematix Institutional Research
Exhibit 39: Traditional power capex has already peaked Exhibit 40: Overall private capex has been in a long slowdown
700 100% 6,000 60%
600 80% 50%
5,000
500 60% 40%
4,000
400 40% 30%
Rs bn
Rs bn
3,000 20%
300 20%
10%
200 0% 2,000
0%
100 -20% 1,000
-10%
- -40% - -20%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Power % y-y growth Linear (% y-y growth) BSE 500 Capex % y-y growth Linear (% y-y growth)
Source: Bloomberg; Company, Systematix Institutional Research Source: Bloomberg; Company, Systematix Institutional Research
Exhibit 41: Metals & Power now small in BSE500 capex share; Hydrocarbon has held on
30%
25%
20%
15%
10%
5%
0%
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 107
20 December 2021 Larsen & Toubro
Production-linked incentive (PLI) schemes may not lead to an order inflow uptick for
L&T
The total proposed incentive under the production-linked-incentive scheme is pegged
at ~Rs 1.9trn over FY21 to FY25. The average incentive is 5%, implying a revenue target
of ~Rs 40trn by FY25.
Asset turnover for the various sectors varies significantly (for example, mobile phone
manufacturing may have an asset turnover of as high as 25-50xto as low as 2x). This
asset turnover would also include land costs in some instances.
In some sectors, given that the incentives are front-loaded, companies are expected
to import capital equipment (anecdotal evidence suggests that companies are even
airlifting equipment from abroad to fasten production), reducing the opportunity for
domestic players.
Nevertheless, we still assume an average 8x asset turnover for the sectors (see table
below), implying a total capex requirement of Rs 4.88trn over the next five years or Rs
975bn p.a.
Even in its core sectors such as process and hydrocarbons, at best L&T bags 10% of
overall capex by the sector historically. For sectors like mobiles or electronics as well
there is limited scope for L&T. Still, hoping for an optimistic 2-10% share across the
various sectors, we calculate Rs 241bn of potential revenue opportunity for L&T over
the next 5 years due to the PLI scheme. This does not encompass the substitution of
capex that would have anyway happened without PLI and will now be subsumed under
this benefit.
The incremental revenues for L&T’s core E&C business are thus ~4% on our FY23E
revenue. These orders will have better margins, working capital and execution cycle
and thus the PAT (core E&C) impact may be higher at ~5%.
We value the core E&C business at Rs 823/share and accordingly, the best-case upside
that we foresee from the PLI scheme for L&T is Rs 41/share.
Exhibit 42: Best-case potential from the PLI scheme for L&T will be Rs 241bn over 5 years, which is only 4% of its core E&C revenues
Incentives Revenue Asset L&T L&T revenue
Rs bn Capex
outlay potential turnover target share potential
Mobile Phones 420 10,500 25 420 2% 8
Advanced Chemistry Cell (ACC)
181 3,620 25 145 2% 3
Batteries
Electronics and Technology Products 50 1,000 25 40 2% 1
Automobiles and Auto Components 570 11,408 5 2,282 5% 114
Pharmaceuticals and Drugs 150 3,000 25 120 2% 2
Telecom and Networking Products 122 2,439 15 163 2% 3
Textiles Products 107 2,137 3 712 5% 36
Food Products 109 2,180 10 218 3% 7
High Efficiency Solar PV Modules 45 900 15 60 3% 2
White Goods 62 1,248 15 83 3% 2
Specialty Steel 63 1,264 2 632 10% 63
1,880 39,696 8.14 4,875 5.00% 241
Source: Company, Systematix Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 108
20 December 2021 Larsen & Toubro
Despite our weak medium-term outlook on order inflow for L&T, execution push can
drive growth for the company along with select large order wins
In our base-case scenario, after factoring in a continued slowdown in execution due to
strained government finances, we estimate core E&C revenues to still deliver a CAGR
of 17.9% over FY21-23E.
Services revenue (31% of FY21 revenues) are expected to grow at a 20.7% CAGR over
the same timeline, leading to consolidated revenue growth of 18.1%.
Despite a weak margin trend in the past for the key infrastructure segment, we expect
margins to improve modestly by 50 bps to 9% in FY22 and remain stable at that level.
We thus estimate core E&C business EBITDA to grow at an 18.8% CAGR, while services
EBITDA is likely to grow at a 32.2% CAGR, leading to a consolidated EBIT CAGR of
23.4%.
L&T’s stringent focus on containing NWC levels is already visible in 1HFY22; we thus
expect NWC levels to fall to 23% from the FY21 peak of 26.8%. At 23%, NWC levels are
still high compared to L&T’s previous levels of 18-20% as recently as FY19.
Nevertheless, even if L&T can contain its NWC levels to 23% and grow revenues as per
our estimates, it should still be able to generate strong OCF/FCF over FY21-23E.
Together with the already visible debt reduction on the back of monetization of non-
core assets, this will aid in further interest cost saving; thus, we estimate core E&C PAT
to grow at a higher rate of 25% CAGR over FY21-23E (vs. revenue/EBITDA CAGR of
17.9%/18.8%), while consolidated PAT CAGR is estimated at 32.2%.
Revenue growth for the core E&C segment slowed due to its elongated execution
cycle; normalization began from FY18.
Over FY10-FY15, L&T witnessed a deceleration in the execution rate as it had an influx
of large orders in its Buildings & Factories (B&F) segment, which had a longer-than-
average execution cycle of approximately five years. This led to disappointing revenue
growth rates over subsequent years, together with a general slowdown in other
business segments as well as an economic slowdown.
As shown in Exhibit 43, L&T’s core E&C order inflow has remained stagnant for several
years now and YTDFY22 orders are still below the run-rate of the past few years.
Nevertheless, slower execution at the same time has meant that order backlog has
continued to grow (8% growth even in FY21 and 12% estimated in FY22).
Order backlog by itself is not much of a challenge for L&T. A stronger push on the
execution of the existing order backlog would help but much of it is also due to the
overall macroeconomic constraints impacting the execution rate.
Despite an overall weak outlook on infrastructure capex by the government, order
inflow will remain just enough to replenish revenues for that year and some more.
After FY15, B&F order inflow (a part of Urban Infra) began to decline. At the same time,
core EPC orders from transportation and water segments have increased, which have
a shorter execution cycle. Thus, the order mix has now turned favourable, leading to
a shorter execution cycle overall.
Historically, as shown in Exhibit 47, revenues grew in tandem with order backlog,
although with a lag of two years. However, this relationship came to a halt around
FY15 and the revenue growth rate fell much behind order backlog growth. This was
primarily due to the elongating execution cycle of the overall order backlog.
As highlighted in Exhibits 35 earlier, the elongated execution cycle was mostly due to
an increase in urban-infrastructure projects in the overall backlog. However, according
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 109
20 December 2021 Larsen & Toubro
to our estimates, the share of urban-infrastructure (and other longer execution cycle
orders within transport IC) in the overall backlog peaked around FY17. As a result,
revenue growth is now gradually normalizing and set to mirror order backlog growth.
The COVID-19 pandemic impacted execution during the lockdown and after that as
social distancing and health norms followed by the company led to longer execution
timelines than earlier. Over a period, assuming economic conditions normalize, the
execution cycle should come back on track, driving better revenue booking for L&T
from FY21 lows.
Accordingly, we are now building in a 17.9% revenue (core E&C) CAGR over FY21-23E
for L&T, compared with 9.5% CAGR delivered over FY14-20. We estimate this
turnaround in revenue growth also to drive margins and FCF.
Exhibit 43: Core E&C orders to grow at a CAGR of 11% between FY21-23 vs. 6% between
FY14-20
Exhibit 44: Order backlog for L&T has continued to grow despite Exhibit 45: Overall book: bill ratio still healthy, while core E&C
slow order inflow growth book: bill ratio at 3.7x (TTM basis)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 110
20 December 2021 Larsen & Toubro
Exhibit 46: Infra segment book: bill has been stable while it has Exhibit 47: Order backlog growth has outpaced revenue growth
improved for the hydrocarbon segment
Exhibit 48: Average execution cycle of the existing orderbook has Exhibit 49: …Annual order inflow for key segments - infra and
elongated in recent times but still better than the FY12-13 peak hydrocarbon have replenished annual execution
Exhibit 50: Infra segment revenue growth should continue Exhibit 51: …while normalization of margins should help drive
on robust order backlog... EBITDA growth
Rs bn
500 5% 6.0%
400 0% 40
300 -5% 30 4.0%
200 -10% 20
2.0%
100 -15% 10
- -20% - 0.0%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Segment Revenue (Rs bn) % y-y revenue growth (RHS) Segment EBITDA (Rs bn) EBITDA Margin (%) (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 111
20 December 2021 Larsen & Toubro
Exhibit 52: Power segment has lost relevance in the overall mix.. Exhibit 53: …as both growth and profitability have shrunk sharply
80 50% 18 30.0%
70 40%
16
30% 25.0%
60 20% 14
50 10% 12 20.0%
0% 10
Rs bn
Rs bn
40 15.0%
-10% 8
30 -20%
6 10.0%
20 -30%
-40% 4
10 5.0%
-50% 2
- -60% - 0.0%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Segment Revenue (Rs bn) % y-y revenue growth (RHS) Segment EBITDA (Rs bn) EBITDA Margin (%) (RHS)
Exhibit 54: Heavy Engineering segment is looking up since FY18 Exhibit 55: …and also enjoys strong margins
Exhibit 56: Despite weak oil prices in the past, strong order Exhibit 57: …Rising capability and order wins in the hydrocarbon
backlog in the hydrocarbon segment helped L&T maintain segment now also reflecting in its improving margin profile
steady growth; rising oil to provide an upside
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 112
20 December 2021 Larsen & Toubro
Exhibit 58: ‘Others’ segment is now primarily dependent on L&T’s Exhibit 59: …margin profile for ‘Others’ is strong due to the
realty segment completions… contribution from the realty segment
Exhibit 60: Core E&C revenue growth to mirror industry growth Exhibit 61: …while core E&C margins should do better on
improving trends and mix
Exhibit 62: Core E&C revenue growth trajectory is already Exhibit 63: …and so is the EBITDA trend
improving though on a lower base
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 113
20 December 2021 Larsen & Toubro
International orders have been stagnant and primarily driven by roads and B&F
In the past decade, L&T ventured into the international markets, primarily the Middle
East, South East Asia, SAARC and Africa, with a focus on hydrocarbon and
infrastructure orders. While its initial entry into these markets was not very
encouraging, as it suffered a significant loss in FY15 in the hydrocarbon projects it took
up in the Middle East, corrective actions have enabled it to return to a profitable trend.
~20-30% of L&T’s annual order inflows in the infrastructure segment have come from
the international markets. While the base orders from these markets have been for
roads, buildings & factories and power T&D, where L&T enjoys strong competence,
occasionally there have been large ticket orders in the metro segment as well, such as
Riyadh metro and Doha metro projects.
Unfortunately, most of these markets went into an ordering slowdown after the oil
price meltdown, at least for the large ticket B&F (Buildings & Factories) and metro/rail
projects. Similarly, hydrocarbon orders have been slow post FY19. With oil prices now
looking up, there is a case for the international segment to pick up for L&T as and when
ordering revives in these markets.
Exhibit 64: International order inflow has been lumpy; not grown since FY15
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 114
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 115
20 December 2021 Larsen & Toubro
Exhibit 66: Tech and finance subsidiaries now account for ~30% Exhibit 67: …and all set to contribute to ~50% of consolidated
of consolidated revenues EBITDA
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 68: …Bulk of the consolidated operating cash flow (OCF) Exhibit 69: …as standalone OCF has averaged only around 40%
driven by tech subsidiaries
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 116
20 December 2021 Larsen & Toubro
Exhibit 72: L&T Infotech (LTI) business snapshot
LTI (USD 1.75bn TTM revenues)
High-tech, media &
Energy & CPG, retail and
Vertical BFSI Insurance Manufacturing entertainment and
Utilities Pharma
Others
TTM Revenues (USD mn) 540.8 262.5 283.5 169.8 190.8 302.8
Revenue mix 31% 15% 16% 10% 11% 17%
CAGR (FY17-21) 18.5% 6.1% 11.7% 11.9% 24.3% 19.3%
Cloud
Enterprise Analytics, AI &
Product/service wise mix ADM & testing Infrastructure & EI/Mobility
solutions Cognitive
security
TTM Revenues (USD mn) 598.5 547.8 257.3 197.8 148.8
Revenue mix 34% 31% 15% 11% 9%
Source: Company, Systematix Research
Exhibit 73: LTI has delivered 13.5% constant currency revenue Exhibit 74: …thus driving a strong 18% PAT CAGR
CAGR over FY16-21 with an improving margin trend
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 117
20 December 2021 Larsen & Toubro
Exhibit 76: LTTS has rapidly transformed into a high-tech play, Exhibit 77: Diversified sector revenue mix for LTTS
leveraging the sector tailwinds
Exhibit 78: LTTS has delivered a 10% CAGR in organic revenue Exhibit 79: …which reflects in a similar trajectory in PAT
over FY16-21
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 118
20 December 2021 Larsen & Toubro
Exhibit 81: Mindtree is a strong addition to L&T’s portfolio Exhibit 82: …with heavy dependence on high-tech business
Exhibit 83: Even as Mindtree revenues have grown at a 9% CAGR Exhibit 84: …PAT has grown at a 12% rate owing to strong margin
over FY16-21… tailwinds
Exhibit 85: Financial services business too has been a key growth Exhibit 86: …but has faced headwinds recently, in-line with the
driver in the past rest of the NBFC sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 119
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 120
20 December 2021 Larsen & Toubro
Exhibit 87: OCF/FCF has been improving
Exhibit 88: Improvement in NWC in the past 2-3 quarters… Exhibit 89: …is the key reason for OCF improvement
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 121
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 122
20 December 2021 Larsen & Toubro
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 123
20 December 2021 Larsen & Toubro
Views on ESG
Infrastructure construction as a business is bound to involve methods and processes
that impact the environment and natural resources. It also involves working with
government departments/ministries; in the past, L&T was barred from World Bank-
funded projects (for an incident in 2005, which led to a 6 months debarment for L&T
from participating in World Bank-funded projects). The company also manufactures
defence equipment (including weapons) for India as well as for export purposes.
Environment protection and the conservation of natural resources are part of L&T’s
business philosophy. The company’s Corporate Environment, Health & Safety (EHS)
Policy emphasizes on incorporating environmental consideration into all business
processes. A separate Code of Conduct has been extended to vendors and service
providers. L&T continues to conduct water assessment surveys at its campuses. All 24
campuses maintained their ‘Water Positive’ status in FY20-21.
L&T also invests in lower emission and clean energy programmes, thus promoting
sustainable growth. Renewable energy at manufacturing campuses is utilized,
wherever feasible. Currently, eight campuses are sourcing renewable energy (wind
and solar) from external sources and all 24 campuses are generating renewable energy
onsite.
The company has established systems and procedures to ensure that its Board of
Directors is well informed and well equipped to fulfil its overall responsibilities and to
provide the management with the strategic direction needed to create long term
shareholder value. The four-tier governance structure, besides ensuring greater
management accountability and credibility, facilitates increased autonomy to the
businesses, performance discipline and development of business leaders, leading to
increased public confidence.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 124
20 December 2021 Larsen & Toubro
FINANCIALS (CONSOLIDATED)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net sales 1,455 1,360 1,626 1,896 2,110 Cash & bank balance 151 162 250 284 321
RM expenses -840 -737 -1,042 -1,231 -1,373 Debtors 407 422 482 542 585
Gross Profit 614 623 584 665 737 Inventory 57 58 66 74 81
Employee expenses -231 -248 -285 -313 -345 Loans & advances 1,032 963 1,101 1,286 1,465
Other expenses -220 -219 -102 -112 -124 Other current assets 681 636 735 833 868
EBITDA 163 156 197 240 269 Total current assets 2,329 2,241 2,634 3,018 3,320
Margin % 11.2% 11.5% 12.1% 12.6% 12.7% Investments 238 433 433 433 433
Depreciation -25 -29 -30 -31 -32 Net fixed assets 396 331 337 334 331
EBIT 139 127 167 209 236 Goodwill 80 81 81 81 81
Interest expenses -28 -39 -36 -35 -32 Total assets 3,043 3,086 3,485 3,866 4,165
Other Income 24 34 31 35 34 Current liabilities 780 780 908 1,032 1,059
Pre-tax profit 134 122 162 208 238 Provisions 35 38 40 47 52
Taxes -33 -40 -44 -55 -63 Total current liabilities 814 818 948 1,079 1,111
PAT 102 82 118 153 175 Borrowings 1,490 1,404 1,576 1,704 1,829
Margin % 7.0% 6.0% 7.3% 8.1% 8.3% Net Deferred Tax liability (24) (15) (15) (15) (15)
Share in profit/loss from JVs 1 0 2 4 4 Total liabilities 2,280 2,207 2,509 2,767 2,925
Minority Interest -13 -13 -21 -26 -29 Paid-up capital 3 3 3 3 3
Recurring PAT 89 69 100 132 150 Reserves & surplus 664 756 831 929 1,041
Non-recurring Items 7 47 0 0 0 Net Worth 667 759 834 932 1,044
Reported PAT 95 116 100 132 150 Minority Interest 95 121 141 167 196
Recurring EPS (Rs) 63.4 49.1 71.0 93.6 107.0 Total equity & liabilities 3,043 3,086 3,485 3,866 4,165
Cash EPS (Rs) 80.9 69.8 92.2 115.7 129.9 Book Value/share (Rs) 475.3 540.2 593.9 663.6 743.2
DPS (Rs) 28.0 35.0 32.0 42.1 48.1 Source: Company, Systematix Institutional Research
Source: Company, Systematix Institutional Research
Cash Flow Ratios
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
Pre-tax profit 143 195 118 153 175 P/E (x) 29.5 38.0 26.3 19.9 17.4
Depreciation 25 29 30 31 32 P/BV (x) 3.9 3.5 3.1 2.8 2.5
Chg in working capital -92 90 -170 -215 -228 EV/EBITDA (x) 16.0 16.8 13.3 10.9 9.8
Other non-cash items 17 -60 -31 -35 -34 EV/Sales (x) 1.8 1.9 1.6 1.4 1.2
Total tax paid -40 -35 0 0 0 Dividend Yield (%) 1.5% 1.9% 1.7% 2.3% 2.6%
Operating Cash Flow 53 218 -54 -66 -54 RoE (%) 13.8% 9.7% 12.5% 14.9% 15.2%
Capital expenditure -151 -38 -35 -29 -29 RoCE (%) 7.7% 7.2% 8.3% 9.1% 9.3%
Free Cash Flow -98 180 -89 -94 -83
Investments 43 -166 0 0 0 Fixed Asset turnover (x) 3.7 4.1 4.8 5.7 6.4
Other investing Cash flow 25 150 26 30 30 Receivable days 102 113 108 104 101
Investing Cash Flow -83 -54 -9 1 1 Inventory days 25 29 23 22 22
Equity raised 0 0 0 0 0 Payable days 190 225 182 172 148
Debt raised/(repaid) 141 -87 172 127 125 Working Capital Cycle (days) 90 86 81 77 79
Dividend (incl. tax) -46 -40 -45 -59 -68
Other Financing Cash Flow -32 -26 23 29 33 Revenue Growth (%) 8% -7% 20% 17% 11%
Financing Cash Flow 64 -153 150 97 91 EBITDA Growth (%) 7% -4% 26% 22% 12%
Net chg in cash 34 11 88 33 38 EPS Growth, % 10% -28% 45% 32% 14%
Opening cash balance 117 151 162 250 284
Closing cash balance 151 162 250 284 321 Net Debt/Equity (x) 2.0 1.6 1.6 1.5 1.4
Mkt Cap 2,620 2,621 2,621 2,621 2,621 Net Debt/EBITDA (x) 8.2 7.9 6.7 5.9 5.6
Net Debt 1,339 1,241 1,326 1,420 1,507 Source: Company, Systematix Institutional Research
EV 3,958 3,862 3,947 4,041 4,128
# of shares 1,404 1,405 1,405 1,405 1,405
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 125
Systematix
Institutional Equities
Sep-21
Feb-21
Apr-21
Nov-21
Dec-20
Jan-21
Jul-21
Dec-21
May-21
Jun-21
Oct-21
cash generation and leverage, partly compensated by the improvements it has made.
Better than expected execution and OCF/FCF conversion will be key upside triggers.
NJCC SENSEX
Key risks
1) Rising competition in EPC contracts; 2) Delayed payments by government entities,
Amar Kedia leading to NWC (net working capital) elongation; 3) Margin impact due to the recent
amarkedia@systematixgroup.in sharp commodity price rise; and 4) low promoter shareholding and history of high
+91 22 6619 8084
share pledge (though now down to 17.2% of shares held).
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 126
20 December 2021 NCC Limited
Story in charts
Exhibit 1: Debt piled up in the last capex cycle as NJCC expanded Exhibit 2: …post FY14, a concerted effort towards debt reduction
across newer geographies and asset-heavy businesses.. has been paying off well
30 4
30 4
4
25 4
25
3 3
20 20
3 3
15 2 15 2
2 2
10 10
1 1
5 5
1 1
- - - -
FY02
FY04
FY03
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS) Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 3: NWC cycle improving (except for temporary COVID-19 related disruptions)
after a serious deterioration post FY08
15,000 250
200
10,000
150
5,000 100
50
0 0
-50
-5,000
-100
-10,000 -150
FY02 FY05 FY08 FY11 FY14 FY17 FY20 FY23E
Change in NWC (Rs mn) OCF (Rs mn) Working Capital Days (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 127
20 December 2021 NCC Limited
Exhibit 4: Strong order backlog growth since FY18 despite the 2019 order cancellation
setback
4,00,000 6
3,50,000
5
3,00,000
4
2,50,000
Rs mn
(x)
2,00,000 3
1,50,000
2
1,00,000
1
50,000
- 0
FY13
FY16
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY14
FY15
FY17
FY18
FY19
FY20
FY21
Buildings Roads
Water Irrigation/Hydro
Orderbook to sales (RHS)
Source: Company, Systematix Institutional Research
Exhibit 5: Revenue growth should ultimately follow its order Exhibit 6: Despite commodity impact, EBITDA growth should be
backlog growth over FY22-25E healthy on account of strong revenue growth
140 0.8 16 14
120 14 12
0.6
100 12
10
0.4
10
80 8
0.2 8
60 6
6
0
40 4
4
20 -0.2 2
2
0 -0.4 0 0
FY12
FY14
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Revenue (Rs bn) Revenue Growth (%) (RHS) EBITDA (Rs bn) EBITDA % (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 7: Improvement in execution, subsidiary investment Exhibit 8: OCF and FCF generation to get a boost (Rs bn)
monetization and NWC reduction has led to better RoCE
16 10
14 8
12 6
10 4
8 2
-
6
(2)
4
(4)
2
(6)
0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
RoE (%) RoCE (%) OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 128
20 December 2021 NCC Limited
Exhibit 9: Concerns over low promoter shareholding and share Exhibit 10: Promoter pledge inversely correlated to NJCC’s
pledge have abated share price in the past
70%
(%)
60% 70.0% 140.00
50.0% 100.00
40%
40.0% 80.00
30%
30.0% 60.00
20%
20.0% 40.00
10%
10.0% 20.00
0%
0.0% -
Mar-05
Mar-02
Sep-03
Sep-06
Mar-08
Sep-09
Mar-11
Sep-12
Mar-14
Sep-15
Mar-17
Sep-18
Mar-20
Sep-21
Sep-11
Mar-15
Mar-19
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Promoter holding % Shares pledged as % of promoter holding Shares pledged as % of promoter holding Share price (Rs) - RHS
Source: BSE, Systematix Institutional Research Source: BSE, Bloomberg, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 129
20 December 2021 NCC Limited
Company background
NJCC is one of India’s largest listed construction companies in terms of revenue and
has a pan-India focus with capabilities across most EPC sub-segments. It has a well-
diversified order book with a presence across segments such as buildings & housing,
roads, water & environment, irrigation, electrical, metals, mining and railways.
It has offices across 13 cities in the key states of Maharashtra, Andhra Pradesh,
Telangana, Karnataka, Gujarat, Uttar Pradesh, West Bengal, Tamil Nadu and an
experienced management team supported by a skilled workforce that includes 5,007
employees (including 3,311 Technical) executing around 120 active sites at various
locations (as on Jun-21).
The company was set up in 1978 as a partnership firm and listed in 1992. It achieved
its peak turnover of Rs 120bn in FY19. At a consolidated level, the bulk of the
business is accounted for in its parent entity (91%), while the remaining 9% of the
revenues is through its subsidiaries that are into road BOT projects and real estate.
It started its journey as Nagarjuna Construction Company Limited. It started as a pure
EPC focused company, and it expanded into several asset-heavy businesses such as
infrastructure BOT, Realty and International businesses over the years.
NJCC offers services that cut across multiple divisions to address the various facets of
infrastructure needs. It has forayed into new divisions by leveraging insights from
over four decades of experience in the construction business. It has largely been able
to complete projects on time and has earned respect for its brand among customers,
financial institutions and associates.
Its journey to date has been very challenging with several business and economic
cycles in the interim. It is one of the few companies apart from L&T that have
survived these cycles and their financial impact.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 130
20 December 2021 NCC Limited
Exhibit 12: NJCC - Key milestones Exhibit 13: Group structure
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 131
20 December 2021 NCC Limited
Exhibit 15: Ability to win and execute large projects pan-India and across verticals
Ability to win large projects
Project Name Sector Location Value (Rs mn)
State water & Sanitation Mission Govt of UP Water & Environment 10 Districts of UP 82,550
AIIMS Buildings & Housing 4 locations 37,170
Nagpur Mumbai express way Roads Maharashtra 28,500
Project Seabird (2 projects) (Seabird project Phase 2A Karwar) Buildings & Housing Karnataka 24,420
APTIDCO Buildings & Housing 2 Locations 17,890
AAI Buildings & Housing 3 locations 16,930
Agra Lucknow Expressway Roads Uttar Pradesh 15,600
TDWSP – RR Water & Environment Ranga Reddy District 15,170
Sauniyojana L-3 Phase 1 and 2 Water & Environment 2 Locations 12,470
Namami Gange & Rural Water Supply Water & Environment Mirzapur & Jhansi 10,840
Lift Irrigation Project (PRLIS) Irrigation Telangana 10,080
MMRDA Mumbai metro Buildings & Housing Mumbai 8,570
NBCC KIDWAI NAGAR Buildings & Housing New Delhi 6,980
Source: Company, Systematix Research
Concerns over low promoter shareholding and high share pledge levels abating
One of the key overhangs for the stock has been the low promoter shareholding and
high share pledge levels. We note that the promoter shareholding has now stabilized
and they have even raised their stake modestly from 18.1% in Mar’19 to 19.7% as of
Sep’21. Share pledge level has also reduced significantly over the years and was
down to 17.2% as of Sep’21 from a high of 60.1% in Mar’13.
Exhibit 16: Concerns over low promoter shareholding and rising Exhibit 17: Promoter pledge inversely correlated to NJCC’s
share pledges abating share price in the past
70%
(%)
60% 70.0% 140.00
60.0% 120.00
50%
50.0% 100.00
40%
40.0% 80.00
30%
30.0% 60.00
20%
20.0% 40.00
10%
10.0% 20.00
0% 0.0% -
Mar-05
Mar-02
Sep-03
Sep-06
Mar-08
Sep-09
Mar-11
Sep-12
Mar-14
Sep-15
Mar-17
Sep-18
Mar-20
Sep-21
Sep-11
Mar-15
Mar-19
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Promoter holding % Shares pledged as % of promoter holding Shares pledged as % of promoter holding Share price (Rs) - RHS
Source: BSE, Systematix Institutional Research Source: BSE, Bloomberg, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 132
20 December 2021 NCC Limited
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 133
20 December 2021 NCC Limited
Investment Analysis
Order backlog of Rs 390bn (4.5x TTM book: bill) is one of the strongest
amongst the peer group
As of Sep’21, NJCC has an order backlog of Rs 390bn (4.5x TTM book: bill), which is
amongst the strongest in its peer group, especially of this size. This is despite the
setback the company faced in 2019 following the cancellation of several orders by
the newly formed Andhra Pradesh government.
Following the cancellation of orders, its order backlog dipped from its then peak of
Rs 411bn in Mar’19 to ~Rs 250bn as of Dec’19. It has, however, grown to the current
high of Rs 390bn since then on the back of a resurgence in order flows from the
buildings & housing and water segments.
At the current level of order backlog, NJCC’s TTM book: bill of 4.5x is at its highest
level ever. Even if we ignore the low base of FY21 revenues, NJCC’s current order
book is 3.23x FY19 reported revenues, which is still amongst the best it has ever had.
Previous such book: bill peaks have been followed by a strong revenue booking as
the orders go into execution mode.
Exhibit 19: Has built up a strong order backlog since FY18 despite the 2019 order
cancellation setback
4,00,000 6
3,50,000
5
3,00,000
4
2,50,000
Rs mn
(x)
2,00,000 3
1,50,000
2
1,00,000
1
50,000
- 0
FY19
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
Buildings Roads
Water Irrigation/Hydro
Orderbook to sales (RHS)
Source: Company, Systematix Institutional Research
Buildings & Housing (B&H) segment is now more diversified and caters to airport
terminals, metro and several Center/PSU funded projects among others
57% of NJCC’s order backlog is contributed by the B&H segment, which has grown at
a CAGR of 20% over FY13-21 despite the order cancellations faced in 2019. Contrary
to its order backlog composition until FY19, where its B&H segment had majority
orders from state-funded projects, today, over 40% of the B&H order backlog
comprises centre-funded or PSU orders. These orders range across the spectrum of
the infrastructure sector, such as airport terminals, metro projects, hospital
buildings, naval base (Karwar) etc.
Apart from providing necessary diversification to its order backlog, these orders also
insulate NJCC from risks such as the one it witnessed in 2019 upon the change in
Government in Andhra Pradesh. Book: bill for the B&H segment stands at 7.6x on a
TTM basis, and even if we take FY19 revenues as a base (given that it was the peak
revenue for NJCC), the book: bill stands at 3.9x.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 134
20 December 2021 NCC Limited
Exhibit 20: Buildings & Housing (B&H) has been the key driver of Exhibit 21: Key B&H projects under execution – Top-4 projects
orders for NJCC accounting for 57% of its backlog (RHS) account for ~40% of the total B&H orderbook
250 9.0
8.0 Details of major projects under execution
200 7.0
Value
6.0 Project Name Location
(Rs mn)
150
5.0
4.0 AIIMS 4 locations 37,170
100
3.0 Project Seabird (2 projects)
Karnataka 24,420
50 2.0 (Seabird project Phase 2A Karwar)
1.0
AAI 3 locations 16,930
- -
FY02
FY10
FY17
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21
MMRDA Mumbai metro Mumbai 8,570
Buildings (Rs bn) TTM Book:Bill (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Water & Environment (W&E) segment is now spread pan-India with state water
supply projects being the primary driver
20% of NJCC’s order backlog is contributed by its W&E segment at Rs 84.7bn as of
Sep’21 and has grown at a CAGR of 12% over FY13-21 despite the order cancellations
in 2019. A large part of the current order backlog in this segment is driven by state
water supply projects, particularly in UP. With the significant opportunity
forthcoming in the segment under the Jal Jeevan Mission and NJCC’s pan-India
presence, we believe W&E will continue to witness a steady pipeline of
opportunities. As of Sep-21, the book: bill in this segment stood at 3.2x on FY19
revenues.
Exhibit 22: Water & Environment (W&E) is the other key segment Exhibit 23: Key W&E projects under execution – Top-4 projects
contributing to ~20% of the total order book account for the bulk of W&E order book
100 4.5
90 4.0 Details of major projects under execution
80 3.5 Value
70 Project Name Location
3.0 (Rs mn)
60
2.5 State water & Sanitation Mission 10 Districts of
50 82,550
2.0 Govt of UP UP
40
30 1.5 Namami Gange & Rural Water Mirzapur &
10,840
20 1.0 Supply Jhansi
10 0.5
TDWSP - Warangal Warangal 7,210
- -
FY02
FY09
FY16
FY03
FY04
FY05
FY06
FY07
FY08
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
The irrigation segment contributes to just 6% of the overall order backlog now and
has not grown much beyond Andhra Pradesh/Telangana
Only about 6% of NJCC’s order backlog is contributed by the irrigation segment,
which has not grown much in the past few years. Even when compared to FY13
levels, it has grown at a CAGR of just 4% over FY13-21. The bulk of the orders in this
segment are from Telangana and Andhra Pradesh and relate to lift irrigation,
reservoirs and canal work. Book: bill for the segment as of Sep’21 stood at 6.2x on a
TTM basis.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 135
20 December 2021 NCC Limited
Exhibit 24: Irrigation contributes to ~6% of the total order book Exhibit 25: Key irrigation projects under execution
30 12.0
Details of major projects under execution
25 10.0
20 8.0 Value
Project Name Location
(Rs mn)
15 6.0
Lift Irrigation Project (PRLIS) Telangana 10,080
10 4.0
FY21
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
4,410
South Canal Package 43 and 44 Pradesh
Irrigation/Hydro (Rs bn) TTM Book:Bill (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Roads is now a small segment for NJCC as the lack of traditionally large EPC orders
and rising competition has kept it away from aggressive bidding
At just Rs 13.4bn of orders in the roads segment, it contributes only 4% of NJCC’s
order backlog as of Sep’21. Like L&T, it has stayed away from HAM projects in its bid
to remain asset-light and not invest own equity for infrastructure projects. With a
major part of road orders being placed on the HAM model in the last few years, NJCC
has missed out on the segment growth opportunity, though arguably also remained
conservative, given the high competitive intensity. We do not foresee a major
change to the road sector order backlog for the company as the bulk of the future
segment growth will still hinge upon NHAI orders under HAM and NJCC may continue
to refrain from participating in those orders.
Exhibit 26: Roads contributes to ~4% of the total order book Exhibit 27: Key roads projects under execution – Top-5 projects
account for bulk of the roads orderbook
FY16
FY02
FY03
FY04
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 136
20 December 2021 NCC Limited
Electricals segment, though small, has grown at a 13% CAGR since FY13
5% of NJCC’s order backlog is contributed by the Electricals segment that has grown
at a CAGR of 13% over FY14-21. Orders in the segment comprise mostly those
relating to power distribution companies and/or those under the Saubhagya scheme.
Book: bill for the segment on a TTM basis stood at ~2.9x as of Sep’21.
Exhibit 28: Electrical projects contribute to ~5% of the total order book – Top-3 projects
account for the bulk of the electrical segment order book
Details of major projects under execution
Value
Project Name Location
(Rs mn)
PVVNL-Saubhagya-Meerut Uttar Pradesh 4,750
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 137
20 December 2021 NCC Limited
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY14
FY19
FY22E
FY23E
FY24E
FY15
FY16
FY17
FY18
FY20
FY21
Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS) Net debt (Rs bn) Interest cost net off other income (Rs bn) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 138
20 December 2021 NCC Limited
Exhibit 31: NWC cycle now improving (except for temporary COVID-19 related
disruptions) after the deterioration post FY08
15,000 250
200
10,000
150
5,000 100
50
0 0
-50
-5,000
-100
-10,000 -150
FY02 FY05 FY08 FY11 FY14 FY17 FY20 FY23E
Change in NWC (Rs mn) OCF (Rs mn) Working Capital Days (RHS)
Exhibit 32: Working capital and investments & loans to Exhibit 33: Cash flow improved post FY14 through asset sales,
subsidiaries between FY08-14 used up significant cash return of loans from subsidiaries and a reduction in NWC
10,000 10,000
5,000 5,000
0 0
Rs mn
Rs mn
-5,000 -5,000
-10,000 -10,000
-15,000 -15,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Capex Loans & Advances to subs Capex Loans & Advances to subs
Subsidiary investments Cash used in core NWC Subsidiary investments Cash used in core NWC
Interest and dividends paid Interest and dividends paid
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 34: Between FY08-14, equity and debt issuance were the Exhibit 35: Post FY14, funding has been led by operating cash flow
key sources of funding improvement leading to debt reduction
15,000 25,000
20,000
10,000
15,000
Rs mn
5,000
Rs mn
10,000
0 5,000
0
-5,000
-5,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Proceeds from share issue
Proceeds from share issue
Proceeds from borrowings Proceeds from borrowings
Other income Other income
Operating CF (before NWC changes) post tax Operating CF (before NWC changes) post tax
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 139
20 December 2021 NCC Limited
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 140
20 December 2021 NCC Limited
120 0.6 14 12
100 12
10
0.4
10
80 8
0.2 8
60 6
6
0
40 4
4
20 -0.2 2
2
0 -0.4 0 0
FY12
FY14
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
Revenue (Rs bn) Revenue Growth (%) (RHS) EBITDA (Rs bn) EBITDA % (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 141
20 December 2021 NCC Limited
…and together with subsidiary monetization, this should lead to an almost debt-
free status by FY24
On our estimates, NJCC is likely to turn almost debt-free at the standalone level by
FY24 (0.05x Net D/E) compared to its FY21 Net D/E of 0.25x. This will be driven by
strong OCF/FCF generation in the core EPC business and partially by the
monetization of subsidiary investments. Given the company’s strong execution
capability across segments pan-India, a debt-free balance sheet will allow a strong
re-rating of the stock.
Exhibit 39: We estimate negligible levels of net debt for NJCC by FY24E
30,000 1.2
25,000 1.0
20,000 0.8
15,000 0.6
10,000 0.4
5,000 0.2
- 0.0
FY13 FY15 FY17 FY19 FY21 FY23E
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 142
20 December 2021 NCC Limited
Exhibit 40: Improvement in execution, subsidiary investment Exhibit 41: WC cycle now under control except for the flare-up
monetization and NWC reduction likely led to better RoCE due to COVID-19
16 250
14
12 200
10
150
8
6 100
4
50
2
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
RoE (%) RoCE (%) Working Cap (Days)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 42: OCF and FCF generation to get a boost (Rs bn) Exhibit 43: …driven by higher conversion from EBITDA/PAT
10 150%
8 100%
6 50%
4 0%
2 -50%
- -100%
(2) -150%
(4) -200%
(6) -250%
FY15
FY20
FY22E
FY23E
FY13
FY14
FY16
FY17
FY18
FY19
FY21
FY19
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
FY22E
FY23E
OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn) OCF/EBITDA FCF/PAT
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 143
20 December 2021 NCC Limited
50
45
40
35
30
25
20
15
10
5
0
Jul-14
Apr-06
Mar-07
Jun-15
Nov-10
May-16
Apr-17
Nov-21
Feb-08
Jan-09
Dec-09
Sep-12
Mar-18
Aug-13
Feb-19
Jan-20
Dec-20
Oct-11
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 144
20 December 2021 NCC Limited
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 145
20 December 2021 NCC Limited
FINANCIALS (STANDALONE)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net sales 82,188 72,557 92,545 1,05,817 1,17,347 Cash & bank balance 3,169 4,385 6,093 5,473 5,169
RM expenses -64,949 -58,725 -75,886 -86,241 -95,638 Debtors 26,180 26,602 30,426 34,789 36,972
Gross Profit 17,239 13,832 16,658 19,576 21,709 Inventory 5,148 5,268 6,764 7,694 8,538
Employee expenses -4,352 -3,494 -4,018 -4,620 -5,082 Loans & advances 8,331 6,144 6,397 5,932 6,009
Other expenses -2,586 -1,794 -2,386 -2,744 -3,155 Other current assets 61,190 61,084 66,311 70,480 77,694
EBITDA 10,302 8,545 10,255 12,212 13,472 Total current assets 1,04,018 1,03,483 1,15,989 1,24,367 1,34,382
Margin % 12.5% 11.8% 11.1% 11.5% 11.5% Investments 11,000 12,522 12,281 12,281 12,281
Depreciation -1,775 -1,741 -1,878 -2,030 -2,204 Net fixed assets 10,631 10,608 10,430 10,401 10,447
EBIT 8,526 6,804 8,377 10,183 11,268 Total assets 1,25,649 1,26,614 1,38,700 1,47,048 1,57,109
Interest expenses -5,179 -4,578 -4,406 -4,388 -4,278 Current liabilities 56,067 54,459 63,439 74,012 82,077
Other Income 1,513 1,156 1,233 1,270 1,243 Provisions 1,479 1,021 1,013 1,130 1,198
Pre-tax profit 4,860 3,382 5,204 7,064 8,233 Total current liabilities 57,547 55,480 64,452 75,142 83,274
Taxes -713 -771 -1,310 -1,778 -2,072 Borrowings 19,101 17,851 17,851 11,279 8,279
Recurring PAT 4,147 2,611 3,894 5,286 6,161 Net Deferred Tax liability (2,055) (411) (411) (411) (411)
Margin % 5.0% 3.6% 4.2% 5.0% 5.3% Total liabilities 74,593 72,920 81,891 86,010 91,142
Non-recurring Items -327 0 0 0 0 Paid-up capital 1,220 1,220 1,220 1,220 1,220
Reported PAT 3,820 2,611 3,894 5,286 6,161 Reserves & surplus 49,837 52,475 55,590 59,819 64,748
Recurring EPS (Rs) 6.8 4.3 6.4 8.7 10.1 Net Worth 51,056 53,694 56,809 61,039 65,967
Cash EPS (Rs) 9.7 7.1 9.5 12.0 13.7 Total equity & liabilities 1,25,649 1,26,614 1,38,700 1,47,048 1,57,109
DPS (Rs) 1.5 0.8 1.3 1.7 2.0 Book Value/share (Rs) 83.7 88.0 93.2 100.1 108.2
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 146
Systematix
Institutional Equities
Jan-21
Sep-21
Dec-21
Feb-21
Mar-21
Apr-21
Jul-21
Nov-21
Aug-21
May-21
Jun-21
Oct-21
Amar Kedia
amarkedia@systematixgroup.in
+91 22 6619 8084
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 147
20 December 2021 KNR Constructions
Story in charts
Exhibit 1: Strong track record of early completion of projects has supported industry-leading margins
1,600 -40%
1,400 -35%
1,200 -30%
-25%
1,000
-20%
Days
800
%
-15%
600
-10%
400 -5%
200 0%
- 5%
Hyderabad - Chanda
Siricilla - Siddipet
Narsapur - Aswaraopet
Karimnagar - Kamareddy
Bijapu - Hungund
Walayar - Vadakkancherry
Hyderabad - Ramagundam
Penchalakona - Yerpedu
Chittor - Mallavaram
Scheduled completion Actual completion % Early completion (RHS)
Source: Company data, Systematix Institutional Research
Exhibit 2: Andhra Pradesh holds a high share of road projects planned under the
National Infrastructure Pipeline, benefiting players like KNRC the most (Rs bn)
(Rs bn)
2,500
2,000
KNRC to benefit as most DPR
(detailed project report)-ready 1,500
road projects are in its core
1,000
focus geographies.
500
0
Karnataka
Kerala
Pradesh
Pradesh
Tamil Nadu
West Bengal
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 148
20 December 2021 KNR Constructions
Exhibit 3: Telangana, AP, Karnataka and MP hold most of the upcoming irrigation
projects, further benefitting players like KNRC (Rs bn)
(Rs bn)
2,500
2,000
KNRC, NCC, Megha and Dilip 1,500
Buildcon to benefit as most of 1,000
the large irrigation projects are 500
in their core focus geographies.
0
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Tamil Nadu I Telangana
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Gujarat I Maharashtra
Pradesh
Andhra
Uttar Pradesh
Andhra Pradesh I
Conceptualization Development Implementation
Exhibit 4: Lumpy order wins since FY12… Exhibit 5: …yet steady and secure revenue growth
100 4.5 45 80%
90 4 70%
40
80 3.5 60%
35
70 3 50%
30
60 40%
2.5 25
50 30%
2 20
40 20%
30 1.5 15 10%
20 1 10 0%
10 0.5 5 -10%
0 0 0 -20%
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Book:Bill (x) (RHS) Revenue (Rs bn) Revenue Growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 6: Revenue growth led to EBITDA improvement Exhibit 7: EBITDA CAGR has been lumpy
9 25 50% 47.1%
8 45%
7 20
40%
6
15 35%
5
30%
4
10 25%
3 19.9%
20%
2 5
15%
1
0 0 10%
3.4%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA % (RHS) % CAGR over FY12-16 % CAGR over FY16-20 % CAGR over FY20-23
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 149
20 December 2021 KNR Constructions
Exhibit 8: Consistent OCF and FCF generation (Rs bn)… Exhibit 9: …driven by high conversion ratio from EBITDA/PAT
6 200%
5 150%
4
100%
3
50%
Rs bn
2
0%
1
0 -50%
-1 -100%
-2 -150%
FY13
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY21E
FY13
FY17
FY22E
FY23E
FY12
FY14
FY15
FY16
FY18
FY19
FY20
OCF - Net Interest expense FCF - Net Interest expense OCF/EBITDA FCF/PAT
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 10: Improvement in margins has led to better RoCE Exhibit 11: WC cycle and D/E under control and amongst the best
150 0.3
35.0
30.0 0.3
120
25.0 0.2
90
20.0 0.2
15.0 60
0.1
10.0
30
0.1
5.0
0 0.0
0.0
FY12
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY17
FY13
FY14
FY15
FY16
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoE (%) RoCE (%) Working Cap (Days) Total D/E (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 150
20 December 2021 KNR Constructions
Company background
KNRC Constructions (KNRC) is a leading construction company with a strong focus on
the southern states of India and a track record of early execution, focus on cash
flows and a conservative but prudent bidding strategy.
The company was incorporated in 1995 by professionals experienced in
infrastructure development - the promoter, Mr. K Narasimha Reddy had founded the
business much earlier to carry out activities as a sub-contractor. It was listed in FY08
and has maintained a prudent and disciplined bidding strategy in an era
characterised by aggressive bidding and over-leveraging by peers.
KNRC has a strong presence in machinery and manpower in the southern states of
Karnataka, Andhra Pradesh and Telangana.
Exhibit 12: Transformation over the past 25 years
Exhibit 13: 75-80% of KNRC’s execution in the past has been in Southern India
State No. of Projects Project Value (Rs mn)
Tamil Nadu 12 36,530
Karnataka 13 17,149
Kerala 2 17,068
AP & Telangana 27 13,099
Madhya Pradesh 5 5,189
Uttar Pradesh 10 4,549
Assam 2 4,038
Gujarat 1 2,550
Arunachal Pradesh 1 2,358
Odisha 1 1,866
Haryana 1 118
Total 75 104,514
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 151
20 December 2021 KNR Constructions
Smt. K. Yashoda Non-Executive Director Wife of the company's founder promoter Mr. Narasimha Reddy.
A Fellow Member of The Institute of Chartered Accountants of India and a senior partner in M/s.
L. B. Reddy & Co., a Chartered Accountants firm. He started his career with Syndicate Bank and
Mr. L. B. Reddy Independent Director has worked in various capacities before retiring as General Manager. He has over 30 years of
experience in planning, audit, monitoring accounting systems, and development. He was also on
deputation from Syndicate Bank with Rayalaseema Grameena Bank as Chairman for six years.
A graduate in commerce from Nagarjuna University and Medical terminology, Hospital Billing
Independent & Non- and Coding from Greenville Technical College, USA. She is a medical office professional with over
Smt G Chandra Rekha
Executive Director seven years of experience in a variety of administrative and clinical positions. She has worked as
a billing and coding specialist and medical administrator in North Hills.
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 152
20 December 2021 KNR Constructions
KNRC won a large irrigation order for Kaleshwaram FCF (Rs mn) (680)
Project (formation of Konda Pochamma Sagar for a
Order backlog (Rs mn) 63,016
capacity of 15.00 TMC near Pamulaparthi, Siddipet
District) worth Rs 5.6bn. Order inflow (Rs mn) 4,853
By 2023-24, NHAI is expected to award 32,300 km, out Revenue growth 11%
of which, 60% of the order book is expected to be EPC The notable feature of the KNRC
and remaining 40% to be HAM. HAM projects is the agreed EBITDA growth 11%
participation to the extent of 49%
PAT growth -2%
The company is now focusing on foraying into other by Cube Highways, which is
areas such as water management through irrigation investing for the first time in Debt/Equity 0.16
FY19 canals, reservoirs, dams, pipelines, building, flyovers, under-construction projects and
metro-rails and railways to diversify the order book and looking to buy back all 4 HAM ROE 21%
widen opportunities. projects in a phased manner i.e on
FCF (Rs mn) 330
COD. This will facilitate KNRC’s exit
with an expected return of more Order backlog (Rs mn) 65,000
than 1.50x on investment.
Order inflow (Rs mn) 37,312
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 153
20 December 2021 KNR Constructions
Year Demand scenario & outlook Key events Key performance indicators
Revenue growth 5%
The COVID-19 pandemic and subsequent nationwide
KNRC continued to enjoy strong EBITDA growth 14%
lockdown disrupted the growth of infrastructure
credit rating of AA- on account of
companies in FY20. Though NHAI was expected to step PAT growth -11%
lower dependence on external
up ordering in 4Q, the momentum waned in March-20,
borrowing, adequate working Debt/Equity 0.11
partially because of the pandemic. Ordering activity is
capital cycle and financial risk
likely to remain muted at least in 1HFY21 – expect some
management. ROE 16%
pick up from 2QFY21, if not later.
FCF (Rs mn) 1,863
To address the pandemic, the government has rolled Order backlog (Rs mn) 78,489
out a stimulus package under the ‘Atmanirbhar Bharat
FY20 Abhiyan’. For roads & highways companies, an The construction work is Order inflow (Rs mn) 34,583
extension of up to 6 months (without contractor costs) progressing as per schedule in all
will be provided by all central agencies. It will cover four HAM projects; the appointed
obligations like completion of work, intermediate day is awaited for one NHAI HAM
milestones and extension of concession period in PPP project. KNRC completed two BOT
contracts. It will also classify the lockdown event as a Toll (NHAI) projects and two
Force Majeure for the projects impacted due to annuity (NHAI) projects. The foray
lockdowns. Besides, the government agencies were also into irrigation paid rich dividends
asked to release partial bank guarantees, to the extent as the company bagged two more
of project completion, to ease cash flow problems. projects in JV to the tune of Rs
MoRTH has also decided to release Rs 75-8bn of 23.3bn.
retention money to provide liquidity support to the EPC
contractors.
The government has laid a roadmap to complete a total During the year, KNRC sold 100% Revenue growth 20%
of 200,000 km of national highways by 2022. In the next of its stake in KNR Walayar EBITDA growth 10%
five years, NHAI can generate USD 14.3bn p.a. from toll Tollways at close to book value
and other sources. In the Union Budget 2021, the and received the entire PAT growth 8%
government has given a massive push to the consideration, thereby repaying
infrastructure sector by allocating USD 32.02bn to promoters’ entire un-secured loan Debt/Equity Nil
FY21
enhance the transport infrastructure. and making KNRC debt-free. ROE 16%
KNRC is executing five HAM projects. Out of these, three FCF (Rs mn) 2,001
Three HAM projects are set to be
HAM projects are expected to achieve COD/PCOD
monetized before the end of FY22. Order backlog (Rs mn) 71,179
during June to September 2021.
Order inflow (Rs mn) 45,088
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 154
20 December 2021 KNR Constructions
Investment Analysis
Strong track record of timely/early project completion has aided
bonus/timely payments
KNRC has a strong track record of early project completion. It has completed some of
its projects one year ahead of schedule. Early completions add to its asset turnover
and result in earnings upsides (early-completion bonus). This is reflected in its
sustained industry-leading EBITDA margin of 17-20% vs. peer average of 12-15%.
Exhibit 16: Strong track record of early completion of projects has aided industry-leading margins
1,600 -40%
1,400 -35%
1,200 -30%
1,000 -25%
-20%
Days
800
%
-15%
600 -10%
400 -5%
200 0%
- 5%
Siricilla - Siddipet
Narsapur - Aswaraopet
Karimnagar - Kamareddy
Bijapu - Hungund
Walayar - Vadakkancherry
Hyderabad - Ramagundam
Hyderabad - Chanda
Penchalakona - Yerpedu
Chittor - Mallavaram
Scheduled completion Actual completion % Early completion (RHS)
Source: Company data, Systematix Institutional Research
FY19
FY12
FY13
FY14
FY16
FY17
FY18
FY20
FY21E
FY22E
FY23E
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 155
20 December 2021 KNR Constructions
Exhibit 18: Bank of in-house equipment
KNRC prefers complete in-house execution and does not contract-out large projects
(> Rs 2.5bn value) to any party. This helps it maintain firm control over project
outcomes and ensures a superior margin/WC cycle.
However, according to the management, for orders below Rs 2.5bn, at times, it does
not make much economic sense to deploy machinery and additional manpower
when they can be gainfully used elsewhere. KNRC may choose to sub-contract such
projects if a third-party contractor is already mobilized in the region, with its
manpower and equipment. This leads to capex savings and eliminates additional
headcount requirements. The management believes that maintaining an appropriate
outsourcing and in-house execution balance is one of the key reasons for its strong
cash flows.
It also has a network of quarries across the southern states, where it can carry out
stone crushing, thus enabling a secure supply of aggregates. It also has several sand
mining approvals, enabling it to burrow sand for projects. With quarries and sand
mining approvals in place, KNRC can claim raw materials security, thus reducing lead
time to execution.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 156
20 December 2021 KNR Constructions
140
120
100
80
Days
60
40
20
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 157
20 December 2021 KNR Constructions
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 158
20 December 2021 KNR Constructions
Exhibit 22: Development-stage road projects in AP, J&K, Maharashtra, Gujarat, MP, UP,
Karnataka to benefit players like PNC, KNRC, Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
PNC, KNRC and Dilip Buildcon to
benefit as most DPR-ready road 1,500
projects are in their core focus
geographies. 1,000
500
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Conceptualization Development Implementation
Exhibit 23: For projects under development/concept stage, most land-ready projects
are in TN, AP, MP; Maharashtra, Karnataka are big opportunities but not land-ready
(Rs bn)
Planned Road projects value split state-wise as per land acquired
1,600
1,400
KNRC and Dilip Buildcon to 1,200
benefit as most land-ready road 1,000
projects are in TN, AP and MP. 800
600
400
200
0
Bengal
Kerala
Karnataka
Others
Pradesh
Telangana
Jammu &
Assam
Maharashtra
Kashmir
West
Uttar
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 159
20 December 2021 KNR Constructions
jobs are also not technically challenging as they largely involve civil excavation
works.
• Attractive margins drive competition. Irrigation projects offer 14-15% EBITDA
margins and largely involve earthwork and excavation, requiring limited
technology inputs. This is attracting increased competition, which we believe
may eventually put pressure on margins.
Exhibit 24: Telangana, AP, Karnataka and MP have most of the upcoming irrigation
projects – to benefit players like KNRC, NCC, Megha and Dilip Buildcon (Rs bn)
(Rs bn)
2,500
2,000
1,500
KNRC, NCC, Megha and Dilip 1,000
Buildcon to benefit as most of 500
the large irrigation projects are 0
Karnataka
Odisha
West Bengal
Pan India
Jharkhand
Gujarat
Pradesh
Maharashtra
Uttar Pradesh
Tamil Nadu I Telangana
Telangana
Madhya
Tamil Nadu
Madhya Pradesh I
Gujarat I Maharashtra
Pradesh
in their core focus geographies.
Andhra
Uttar Pradesh
Andhra Pradesh I
Conceptualization Development Implementation
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 160
20 December 2021 KNR Constructions
20%
5%
0%
-20%
0%
-40%
FY10
FY18
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY14
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
While RoE and RoCE may not be the best efficiency measures for construction
companies, given that these companies tend to be asset-light, they are reasonable
filters for relative performance. On that count, while the larger players have
struggled to maintain their RoEs/RoCes, smaller players like KNRC have done better
as they chose to stick to their core expertise and divest BOT/HAM assets.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 161
20 December 2021 KNR Constructions
Exhibit 27: KNRC has performed better than most companies… Exhibit 28: …in terms of RoCE
(%) (%)
45
60
40
35 50
30
40
25
20 30
15
20
10
5 10
0
0
-5
FY07
FY10
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
-10
FY09
FY14
FY19
FY07
FY08
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY20
FY21
KNR Constructions PNC Infratech Ashoka Buildcon
GR Infra HG Infra NCC Dilip Buildcon Sadbhav Engineering PSP Projects
Source: Company, Systematix Institutional Research, Bloomberg Source: Company, Systematix Institutional Research, Bloomberg
Beyond the traditional growth and return ratios, we believe that cash generation is a
key metric for assessing how construction companies fare. As the charts below
depict, KNRC is amongst the few companies in the roads space with consistent
OCF/FCF (post interest expense) over FY14-21.
Thus, given its strong balance sheet and modest ambitions, KNRC is a better bet than
large diversified conglomerates with high ambitions – it is deleveraged, better
managed, has a demonstrated history of FCF and will likely fare better in the
upcoming awards.
Barring KNRC, most listed companies have struggled to generate or maintain a
consistent OCF/FCF pattern due to unrelated diversification and/or aggressive
growth campaigns.
Additionally, while companies like KNRC have negligible net interest expense as a
percentage of EBITDA, larger names like Dilip/Sadbhav have huge interest costs that
take away a large chunk of their EBITDA, leaving little for the bottom line or
distributable cash flow.
Exhibit 29: KNRC stands out for OCF/FCF generation as well as negligible interest cost as % of EBITDA
Market Cumulative OCF- Cumulative FCF- Cumulative OCF as Cumulative FCF as Average Interest
(Rs mn) Cap Interest Interest % of mkt cap % of mkt cap paid as % of EBITDA
(Rs bn) FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
KNR Constructions 82 17,770 9,628 6,528 2,187 22% 12% 8% 3% 8% 7%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
Sadbhav Engineering 7 4,562 4,495 (4,533) 2,452 62% 61% -61% 33% 39% 43%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Source: Systematix Institutional Research, Company, Bloomberg
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 162
20 December 2021 KNR Constructions
Some key reasons for KNRC’s outperformance compared to the rest of the sector:
• Strong focus on core markets (geography and segment-wise). For example, in a
bid to chase growth, companies have diversified away from their home markets -
where they tend to be stronger - or focus segments. This has led to lower
margins/execution challenges for these companies, as they lose control over the
actual execution and depend on sub-contractors.
• The focus on restricting to core markets/segments is also a function of growth
that can be organically met by adding one’s own equipment/management
bandwidth. However, as soon as companies start to rely on outsourcing work to
other contractors, they end up being a service trading company.
KNRC consistently focused on its core markets and the road/water segments, while
its peer group has been much more diversified. This depiction is despite suffering
from a survivorship bias, wherein a significant number of construction companies
that went bankrupt in the previous cycle do not even feature in this analysis.
Exhibit 30: State-wise order book split; >90% of projects in Exhibit 31: Segment-wise order book split; over 70% of projects in
Southern India the roads segment with irrigation being a new entry
100% 100%
90% 90%
80% 80%
70%
70%
60%
60%
50%
40% 50%
30% 40%
20% 30%
10% 20%
0% 10%
FY16 FY17 FY18 FY19 FY20 FY21 0%
AP & Telangana Tamil Nadu Karnataka FY16 FY17 FY18 FY19 FY20 FY21
Kerala Arunachal Pradesh Madhya Pradesh Roads Irrigation Others
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
31% Karnataka
10%
AP & Telangana
Madhya Pradesh
Kerala
12%
Tamil Nadu
Others
12%
23%
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 163
20 December 2021 KNR Constructions
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY18
FY20
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY21E
FY22E
FY23E
Order Book (Rs bn) Book:Bill (x) (RHS) Revenue (Rs bn) Revenue Growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS) % CAGR over FY12-16 % CAGR over FY16-20 % CAGR over FY20-23
Source: Company, Systematix Institutional Research Source: Bloomberg, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 164
20 December 2021 KNR Constructions
Strong and consistently high OCF/FCF conversion from EBITDA
An average OCF (post interest expense) to EBITDA conversion ratio of 82% over F12-
20 speaks highly of KNRC’s strong control over its margins, working capital and
subsequently cash generation capabilities.
Similarly, its FCF (post interest expense) to EBITDA conversion ratio has been at ~45%
over FY12-20, which again is amongst the highest in the industry. Not surprisingly,
KNRC is among the few companies in the EPC space to have negligible interest
expenses and is practically debt-free at the parent level despite exposure to HAM
projects.
Exhibit 37: Consistent OCF and FCF generation (Rs bn) Exhibit 38: …driven by high conversion ratio from EBITDA/PAT
6 200%
5 150%
4
100%
3
50%
Rs bn
2
0%
1
0 -50%
-1 -100%
-2 -150%
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY16
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
OCF - Net Interest expense FCF - Net Interest expense OCF/EBITDA FCF/PAT
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
30.0 0.3
120
25.0 0.2
90
20.0 0.2
15.0 60
0.1
10.0
30
0.1
5.0
0.0 0 0.0
FY14
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY23E
FY21E
FY22E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
RoE (%) RoCE (%) Working Cap (Days) Total D/E (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 165
20 December 2021 KNR Constructions
Exhibit 41: Key assumptions
Rs mn FY19 FY20 FY21 FY22E FY23E
Order inflow 37,312 34,583 45,088 45,971 45,971
Revenues 21,373 22,442 27,026 32,549 40,863
EBITDA margin 20.0% 21.7% 19.8% 20.0% 19.9%
Order book 40,156 52,297 71,023 84,445 89,553
Ob to sales (x) 1.9 2.3 2.6 2.6 2.2
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 166
20 December 2021 KNR Constructions
Exhibit 43: KNRC is trading above its long-term mean P/E; we still like it due to its
proven cautious strategy and consistent OCF/FCF generation
25
20
15
10
0
Jul-14
Jun-15
Nov-10
May-16
Apr-17
Feb-19
Nov-21
Feb-08
Jan-09
Dec-09
Sep-12
Mar-18
Jan-20
Aug-13
Dec-20
Oct-11
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 167
20 December 2021 KNR Constructions
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 168
20 December 2021 KNR Constructions
FINANCIALS (STANDALONE)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E
Net sales 22,442 27,026 32,549 40,863 46,317 Cash & bank balance 330 1,173 1,212 1,181 2,345
RM expenses -16,319 -20,347 -24,462 -30,831 -34,796 Debtors 4,761 8,632 7,580 8,397 9,517
Gross Profit 6,123 6,679 8,087 10,032 11,521 Inventory 1,232 1,480 2,229 2,799 3,172
Employee expenses -1,252 -1,321 -1,585 -1,902 -1,997 Loans & advances 57 105 131 157 181
Other expenses 0 0 0 0 0 Other current assets 7,474 7,128 9,314 11,141 12,844
EBITDA 4,871 5,358 6,502 8,130 9,524 Total current assets 13,854 18,519 20,466 23,675 28,059
Margin % 21.7% 19.8% 20.0% 19.9% 20.6% Investments 7,807 5,557 9,033 10,952 12,457
Depreciation -1,918 -1,444 -1,376 -1,749 -1,969 Net fixed assets 3,907 3,416 4,162 4,614 4,845
EBIT 2,952 3,915 5,126 6,381 7,555 Total assets 25,568 27,492 33,661 39,240 45,360
Interest expenses -474 -487 -325 -449 -509 Current liabilities 6,901 8,641 9,860 10,500 12,018
Other Income 566 496 325 350 400 Provisions 232 344 344 344 344
Pre-tax profit 3,044 3,924 5,125 6,282 7,445 Total current liabilities 7,133 8,985 10,204 10,844 12,362
Taxes -685 -1,370 -1,290 -1,581 -1,874 Borrowings 2,141 7 1,000 1,000 -
Recurring PAT 2,359 2,554 3,835 4,701 5,572 Non-current liabilities 1,665 1,536 1,850 2,323 2,633
Margin % 10.5% 9.5% 11.8% 11.5% 12.0% Net Deferred Tax liability (1,610) (1,715) (1,715) (1,715) (1,715)
Non-recurring Items -107 -112 0 0 0 Total liabilities 9,329 8,814 11,339 12,452 13,280
Reported PAT 2,252 2,442 3,835 4,701 5,572 Paid-up capital 281 562 562 562 562
Recurring EPS (Rs) 8.4 9.1 13.6 16.7 19.7 Reserves & surplus 15,958 18,116 21,759 26,225 31,517
Cash EPS (Rs) 15.2 14.2 18.5 22.9 26.7 Net Worth 16,239 18,678 22,322 26,788 32,080
DPS (Rs) 0.5 - 0.7 0.8 1.0 Total equity & liabilities 25,568 27,492 33,661 39,240 45,360
Source: Company, Systematix Institutional Research Book Value/share (Rs) 57.7 66.4 79.4 95.2 113.7
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 169
Systematix
Institutional Equities
Feb-21
Mar-21
Apr-21
Jul-21
Aug-21
Nov-21
Sep-21
Dec-20
May-21
Jun-21
Oct-21
Dec-21
PNCL SENSEX
Amar Kedia
amarkedia@systematixgroup.in
+91 22 6619 8084
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 170
20 December 2021 PNC Infratech
Story in charts
Exhibit 1: UP has the third largest pipeline of road projects under the NIP, benefitting players like PNCL
Project stage Promoter Mode of implementation
Grand
Rs bn Conceptuali Developme Implementa Not
Centre States/UTs EPC HAM PPP Total
zation nt tion Disclosed
Pan India - - 3,600 3,600 - - - 3,600 - 3,600
Andhra Pradesh 1,021 703 647 763 1,608 1,625 715 - 31 2,371
Maharashtra 964 247 905 1,383 734 768 1,226 - 122 2,116
Uttar Pradesh 363 157 1,329 973 877 1,109 625 - 114 1,849
Tamil Nadu 1,727 98 24 802 1,047 1,071 747 - 31 1,848
Karnataka 795 157 164 1,063 53 17 1,030 - 70 1,116
Gujarat 97 256 400 517 235 328 348 45 32 752
West Bengal 438 66 101 434 172 147 382 - 76 605
Telangana 447 91 54 514 77 160 431 - - 592
Jammu & Kashmir 43 397 101 541 - 479 62 - - 541
Kerala 330 128 18 460 16 - 460 16 - 476
Madhya Pradesh 141 223 82 188 259 275 156 - 16 447
Assam - 224 200 424 - 424 - - - 424
Source: Systematix Institutional Research, India Investment Grid
State projects
Expressways
Significantly large prospects to limit
competition
Source: Systematix Institutional Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 171
20 December 2021 PNC Infratech
Exhibit 3: PNCL has not chased growth; has had lumpy order wins Exhibit 4: ...but that has still yielded steady revenue growth
140 6 70 80%
120 70%
5 60
60%
100 50 50%
4
40%
80 40
3 30%
60 30 20%
2 10%
40 20 0%
20 1 -10%
10
-20%
0 0 0 -30%
FY13
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS) Revenue (Rs bn) Revenue Growth (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 5: EBITDA has improved in line with revenues Exhibit 6: EBITDA CAGR to pick up on strong execution
10 20 35%
9 18
8 16 30%
7 14
6 12 25%
5 10
20%
4 8
3 6 15%
2 4
1 2 10%
0 0
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS)
CAGR (FY13-16) CAGR (FY16-20) CAGR (FY20-23)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 7: Improvement in margins has led to better RoCE Exhibit 8: WC cycle and D/E under control and amongst the best
35
200 0.6
30 180
0.5
25 160
140
0.4
20 120
100 0.3
15
80
10 0.2
60
40
5 0.1
20
0 0 0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
RoE (%) RoCE (%) Working Cap (Days) Total D/E (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 172
20 December 2021 PNC Infratech
Exhibit 9: Consistent OCF and FCF generation… Exhibit 10: …driven by high conversion ratio from EBITDA/PAT
8
250%
6 200%
150%
4
100%
2 50%
- 0%
-50%
(2)
-100%
(4) -150%
FY16
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn) OCF/EBITDA FCF/PAT
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 173
20 December 2021 PNC Infratech
Company background
Based in Uttar Pradesh (UP), PNC Infratech (PNCL) is amongst India’s leading civil
construction companies. It has strong in-house execution capabilities, a proven track
record of early execution, a large equipment bank and a strong employee base. It is
the largest road construction company in UP and could be a beneficiary of sustained
infrastructure capex pick up in the northern states.
It has expertise in executing various infrastructure projects, including highways,
bridges, flyovers, power transmission lines, airport runways, development of
industrial areas and other infrastructure activities. However, its core focus area has
been road projects and it is now taking up water supply projects as well.
The company was incorporated in 1999 as PNC Construction Company Private Ltd
and was soon certified as a ‘Super Special’ class by Military Engineering Services. Its
first foray into highways was in 2001 when it independently executed the Agra
Gwalior section of the NH-3 highway in UP. PNCL received an early completion bonus
for its first project from NHAI in 2003 and has since then focused primarily on road
EPC projects as its core business. The company has developed capabilities to execute
Transmission & Distribution projects and rail EPC work (executing a section of the
Eastern DFC).
It has executed 70 major infrastructure projects spread across 13 states, of which 47
are road EPC projects; it is currently executing 25 projects. PNCL is also operating 6
BOT & 1 OMT project, comprising both toll & annuity assets and has a portfolio of 11
HAM projects of which, 7 HAM projects are currently under construction.
Exhibit 11: PNCL – Scope of EPC capabilities
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 174
20 December 2021 PNC Infratech
Exhibit 12: Key milestones since inception
Year Events
1999 The company was incorporated as 'PNC Construction Company Private Limited'.
2001 Executed first independent project with the NHAI, being the four-laning of the Agra-Gwalior section of NH3 in UP.
2003 Received bonus from the NHAI for ahead of scheduled completion of four-laning of the Agra-Gwalior section independently.
2005 Executed first international airport runway project for the AAI in Kolkata.
2007 Awarded BOT road project by Madhya Pradesh Road Development Corporation Limited.
Commenced construction of power transmission lines comprising the construction project of approximately 350 Kms of 132/220 kv lines on a
2008
turn-key basis.
Received a contract to improve the Gurgaon-Nuh-Rajasthan Border (SH13) by the Haryana State Roads and Bridges Development Corporation
2009
Limited amounting to Rs 3,380mn.
2010 Awarded first independent BOT road project to improve the Gwalior-Bhind, MP/UP Border Road, NH92.
Entered into a Collaborative MoU with POSCO Engineering and Construction India Private Limited.
Completed 166 km long Raebareli-Jaunpur highway project on BOT-Annuity project more than 3 months ahead of schedule in February 2016.
2016
Awarded two major NH projects on EPC mode (i) Four laning of Nagina-Kashipur Section of NH 74 (ii) Four laning of Varanasi-Gorakhpur
section of NH-29 (Package II) for an aggregate contract price of Rs 20.2bn.
Awarded four highway projects on Hybrid Annuity Model (HAM) with an aggregate Bid Project Cost of Rs 50.35bn and one of them – Dausa-
Lalsot-Kauthun Section achieved financial closure well before time.
2017
Traffic opened on Agra-Lucknow Expressway in February 2017, eleven months ahead of schedule and achieved provisional completion in
October 2017.
Received Rs 582.3mn early completion bonus for Agra-Lucknow Expressway package in February 2018 from UP Expressways Industrial
Development Authority.
Awarded two contiguous packages of Purvanchal Expressway Project on EPC mode for a total cost of Rs 25.2bn.
2018
Received Rs 337.3mn towards Bonus Annuity in May 2018 from NHAI.
Awarded 4th Package of Nagpur-Mumbai Six Lane Expressway in Maharashtra on EPC basis for a contract price of Rs 19.99bn.
Received Provisional Completion Certificate for the Aligarh-Moradabad Section of NH-93 project, 73 days ahead of the scheduled completion
2019
date and entitled for early completion bonus.
2020 Secured Four New Highway Projects on HAM, from NHAI for aggregate bid project cost of Rs 65.96bn.
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 175
20 December 2021 PNC Infratech
Holds a bachelor’s degree in Medicine and a Master’s degree in Surgery. His professional experience includes serving
Mr. Ashok Independent
as a professor in S.N. Medical College, Agra along with a rich experience in business and management. He is serving on
Kumar Gupta Director
the board of Directors since 2009.
Holds a Bachelor’s degree in Commerce and Law. She is also a qualified Chartered Accountant. Her professional
Ms. Deepika Independent
experience of 16 years includes financial management and taxation and audit activities. She is also a designated
Mittal Director
partner at M/s. PMA & Co., Chartered Accountants, Agra. She is serving as a Director on PNCL’s Board since 2014.
Has over 40 years of experience in Banking and Finance and served as Managing Director and Chief Executive officer of
Mr. Gauri Independent Punjab National Bank in 2015. Before this, he worked in Bank of India in various positions. He has vast experience in
Shanker Director domestic and international operations. His forte is Finance, Strategy and HR Development. He is serving as the Director
on PNCL’s Board since 2018.
Former Secretary to the Government of India; spent over three and half decades in the Indian Administrative Service,
Haryana Cadre. He has held various posts such as Additional Chief Secretary, Principal Secretary and Director of
various departments of the Haryana government. In his initial career, he worked as District Magistrate/Collector of five
Mr. Krishan Independent
districts in Haryana namely Bhiwani, Sonepat, Rewari, Faridabad and Karnal. At the Government of India, he had
Kumar Jalan Director
worked as Central Provident Fund Commissioner; major e-governance initiatives and activities were undertaken in the
Employee Provident Fund Organisation under his leadership. He has also worked as Joint Secretary in the Ministry of
Textiles, Government of India. He is serving as the Director on PNCL’s Board since 2019.
Civil Engineer with masters in planning from School of Planning & Architecture, New Delhi with specialization in
Transport Infrastructure. He also holds a post-graduate diploma in construction management. He has over three
decades of professional experience in planning, engineering, development, implementation and management of
Mr. Talluri infrastructure projects across sectors. He also extensively worked on structuring projects on PPP models. He joined
Whole-time
Raghupati PNCL in May 2014 as the Executive Vice President (Infra) and has been elevated to the company’s board since August
Director
Rao 2019 as a Whole Time Director. He oversees business development, monitoring & coordinating of implementation,
contract administration, overseeing operational projects on BOT-Toll, Annuity & HAM, arbitration and corporate
communications of the company. Before joining PNCL, he had worked with SREI Infra Finance Ltd as Senior Vice
President, IL&FS IDC Ltd. as Vice President and RITES (PSU) as a Deputy GM.
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 176
20 December 2021 PNC Infratech
During the year, PNCL completed two very Revenue growth 71%
Multiple headwinds impacted revenues.
challenging projects namely four-laning of 10 km long EBITDA growth 50%
Progress of ongoing works also suffered on
Dholpur-Morena Section of NH-3 including a major PAT growth 4%
account of the ban on inter-state
bridge on river Chambal, one of the highest river
transportation of minor minerals, sand mining Debt/Equity 0.12
FY17 bridges in the country and four laning of Agra bypass
etc. in the state of UP, particularly in the
connecting NH-2 and NH-3 amid very challenging ROE 21%
second half of the year.
working conditions with very complex structures. FCF (Rs mn) 1,700
Order backlog (Rs mn) 37,689
Order inflow (Rs mn) 18,400
During the previous two years, for the majority of During FY19, PNCL secured five new orders of Revenue growth 11%
new projects secured by the company, physical Rs 58.6bn aggregate value amidst stiff EBITDA growth 11%
execution couldn’t be commenced due to prolonged competition, which is the highest ever new
delay in declaration of appointed dates by the PAT growth -2%
business secured by it in a single financial
authorities owning to persistent holdups in timely year. The prders include two contiguous Debt/Equity 0.16
acquisition and possession of vacant land by them. packages of Purvanchal Expressway in Uttar ROE 21%
Even though PNCL was geared to commence Pradesh worth Rs 25.2bn and one package of
execution in full swing, its hands were virtually tied- FCF (Rs mn) 330
Nagpur-Mumbai Super Communication
up to move ahead primarily due to the non- Expressway in Maharashtra for a contract Order backlog (Rs mn) 65,000
FY19 availability of required land and other impediments. price of Rs20bn.
Given the challenge, PNCL had assumed higher Order inflow (Rs mn) 37,312
responsibilities than envisaged in the contracts - Net working capital cycle days stood at 97
supporting the authorities in expediting the process days whereas debtor days stood at 73 days
of land acquisition and removal of encumbrances against 113 days and 136 days a year ago.
across projects. These concerted efforts made by
PNCL resulted in the declaration of appointed dates
and commencement of execution at most of the
awarded projects in the latter part of FY18 and during
FY19.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 177
20 December 2021 PNC Infratech
Key performance
Year Demand scenario & Outlook Key events Year
indicators
The company proposed to divest its entire 35% stake Revenue growth 5%
in Aligarh-Ghaziabad project to any interested PNCL has maintained a consistent OCF/FCF
EBITDA growth 14%
strategic investor. The divestment will reduce pattern, as it has stuck to its core expertise
exposure for lenders as well, resulting in enough and focused on domestic markets and PAT growth -11%
liquidity for funding the company’s future projects. ignored unrelated diversification as well as Debt/Equity 0.11
PNCL is also looking to monetize its other HAM aggressive growth campaigns.
FY20 projects. ROE 16%
PNCL is one of the few players in the road space in It has negligible net interest expense as a FCF (Rs mn) 1,863
India that have had consistent OCF/FCF (post interest percentage of EBITDA, thus having significant
expense) over FY2014-2019. distributable cash flow. Order backlog (Rs mn) 78,489
During FY20, PNCL's gross block was over Rs 10bn As on March-20, the net working capital days Order inflow (Rs mn) 34,583
which allows it to execute projects worth Rs 70bn. reduced to 57 days from 97 days in March-19.
The company follows a cluster-based approach with PNCL believes that the trajectory of road Revenue growth 1%
more than 66% of its total order book from Uttar capex going ahead will depend significantly EBITDA growth -8%
Pradesh. This has resulted in geographical advantage on asset monetization, as there are limits to
PAT growth -20%
and optimum utilization of resources, translating into the funds that NHAI can generate through 1)
superior operating leverage and profit margins. It also borrowings and 2) budgetary support from Debt/Equity (0.13)
allows the company to bid at competitive rates and cess (in light of increasing crude oil prices). In ROE 1353%
still maintain its margin and profitability profile. PNCL addition, the fiscal situation of state
FCF (Rs mn) 3,163
stands to benefit from its geographical advantage governments has deteriorated due to COVID-
given the robust project pipeline in North India, 19, which has further limited their ability to Order backlog (Rs mn) 116,480
especially in Uttar Pradesh. fund additional capex for road construction. Order inflow (Rs mn) 79,444
FY21 PNCL has a standalone net debt to equity ratio of
0.14x as of FY21. It will be financing equity It has financial and technical qualifications to
investment in HAM projects through own cash bid for a single EPC project up to a ticket size
generation and monetization of its BOT and HAM of Rs 40bn. It has invested more than Rs 8bn
projects. The company is evaluating a Share Purchase in the last five years in construction
Agreement with the preferred investors for the sale equipment and machinery, which gives it the
of a 100% aggregate stake in Ghaziabad Aligarh capability to execute projects worth of up to
Expressway. It is also looking to monetize its Rs 100bn annually.
completed and nearing completion HAM projects.
It has successfully diversified into the drinking water Prudent financial management has further
supply segment by bagging some large rural water allowed PNCL to reduce net working capital
supply projects under the Jal Jeevan Mission in UP. days to 51 days vs. 57 as on March-20.
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 178
20 December 2021 PNC Infratech
Investment Analysis
Play on infrastructure capex pipeline in UP and other Northern parts
PNCL will be the key beneficiary of significant opportunities originating in UP
Uttar Pradesh is the largest state in terms of population in India and has a
disproportionately large impact on electoral outcomes. The incumbent government
has highlighted its intent for an extensive infrastructure capex program in UP.
There are central plans for Rs 1.5-2tn on roads to develop 15 greenfield highways
and convert 72 State Highways into National Highways. The state government is
pushing for its flagship Expressways as well.
In addition, ring roads are planned for all major cities. Of the state projects, the key
Purvanchal Expressway (Rs 260bn) is already awarded, while other expressways like
Bundelkhand and Yamnotri Expressway by the NHAI are in the pipeline.
PNCL is expected to be the prime beneficiary of these opportunities, as road capex
sustains its momentum gained since 2014 in UP and other parts of North India.
Exhibit 15: Significant opportunity landscape in Uttar Pradesh
Region Opportunity PNCL’s core competency in the region Risks
Assured supply of aggregates from own GR Infra, Dilip Buildcon and L&T are also
Uttar Pradesh Central projects
mines in nearby states active in large projects in the region
MoRTH pipeline of Rs 1.5-2trn over the
Pre-existing clusters
next 3-4 years
Strong execution credentials and balance
✓ 15 greenfield projects
sheet
✓ 72 State Highways converted to
National Highways
✓ Ring roads in all major cities namely
Kanpur, Gorakhpur, Bareilly,
Moradabad and Meerut
✓ Bundelkhand Expressway (Delhi-
Jhansi)
✓ Delhi Yamnotri Expressway
State projects
Expressways
Significantly large prospects to limit
competition
Source: Systematix Institutional Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 179
20 December 2021 PNC Infratech
Apart from the planned expressways in this region, there are ~10,000km of state
roads planned by the government. These projects offer additional opportunities for
clustering if PNCL secures one or more larger contracts in the region.
With opportunities set to grow due to increased HAM awarding even by States and
with most players executing close to their execution capacity, we expect PNCL to
keep up with its growth momentum and at the same time maintain its premium to
NHAI estimated costs.
Exhibit 16: Development-stage road projects – mostly in AP, J&K, Maharashtra, Gujarat,
MP, UP and Karnataka – benefit players like PNCL, KNRC and Dilip Buildcon
(Rs bn)
2,500
2,000
PNCL, KNRC and Dilip Buildcon
to benefit as most DPR-ready 1,500
road projects are in their core 1,000
focus geographies.
500
Karnataka
Kerala
West Bengal
Pradesh
Pradesh
Tamil Nadu
Telangana
Gujarat
Assam
Others
Maharashtra
Madhya
Jammu &
Pradesh
Andhra
Kashmir
Uttar
Exhibit 17: Maharashtra, UP and MP with over Rs 4.5trn of road projects are the key geographical focus areas
Project stage Promoter Mode of implementation
Grand
Rs bn Conceptuali Developme Implementa Not
Centre States/UTs EPC HAM PPP Total
zation nt tion Disclosed
Pan India - - 3,600 3,600 - - - 3,600 - 3,600
Andhra Pradesh 1,021 703 647 763 1,608 1,625 715 - 31 2,371
Maharashtra 964 247 905 1,383 734 768 1,226 - 122 2,116
Uttar Pradesh 363 157 1,329 973 877 1,109 625 - 114 1,849
Tamil Nadu 1,727 98 24 802 1,047 1,071 747 - 31 1,848
Karnataka 795 157 164 1,063 53 17 1,030 - 70 1,116
Gujarat 97 256 400 517 235 328 348 45 32 752
West Bengal 438 66 101 434 172 147 382 - 76 605
Telangana 447 91 54 514 77 160 431 - - 592
Jammu & Kashmir 43 397 101 541 - 479 62 - - 541
Kerala 330 128 18 460 16 - 460 16 - 476
Madhya Pradesh 141 223 82 188 259 275 156 - 16 447
Assam - 224 200 424 - 424 - - - 424
Source: Systematix Institutional Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 180
20 December 2021 PNC Infratech
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 181
20 December 2021 PNC Infratech
Exhibit 20: PNCL’s business model ensures significant control over execution and cost
▪ Ownership of a fleet of
modern equipment enables
quick mobilization besides ▪ Own / Leasing of Quarries
ensuring continuous availability helps in securing of raw material
of critical equipment and project completion within
▪ Reduces costs and facilitates scheduled time & budget
timely completion of projects
through enhanced control
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 182
20 December 2021 PNC Infratech
120 5
100
4
80
3
60
2
40
20 1
0 0
FY13
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS)
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 183
20 December 2021 PNC Infratech
FY18
FY07
FY08
FY09
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY14
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 184
20 December 2021 PNC Infratech
Beyond the traditional growth and return ratios, we believe that cash generation is a
key metric for assessing how construction companies fare. As the charts below
depict, PNCL is amongst the few companies in the roads space with a consistent
OCF/FCF (post interest expense) over FY14-21.
Given its strong balance sheet, PNCL is a better bet against large diversified
conglomerates with high ambitions – it is deleveraged, has a demonstrated history of
FCF, is better managed and will likely fare better in the upcoming awards as well.
As against PNCL, we notice that most companies have struggled to generate or
maintain a consistent OCF/FCF pattern, mostly due to unrelated diversification and
aggressive growth campaigns.
We also note that companies like PNCL have negligible net interest expense as a
percentage of EBITDA, while larger names such as NJCC/Dilip/Sadbhav have huge
interest costs that take away a large chunk of their EBITDA, thus leaving little for the
bottom line or distributable cash flow.
Exhibit 24: KNRC stands out for OCF/FCF generation as well as negligible interest cost as % of EBITDA
Market Cumulative OCF- Cumulative FCF- Cumulative OCF as Cumulative FCF as Average Interest
(Rs mn) Cap Interest Interest % of mkt cap % of mkt cap paid as % of EBITDA
(Rs bn) FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21 FY12-21 FY18-21
NCC 46 (5,216) 2,608 (23,627) (9,178) -11% 6% -51% -20% 60% 42%
KNR Constructions 82 17,770 9,628 6,528 2,187 22% 12% 8% 3% 8% 7%
PNC Infratech 75 18,742 15,467 6,960 8,419 25% 21% 9% 11% 12% 10%
Dilip Buildcon 82 (30,432) (18,210) (68,983) (34,723) -37% -22% -84% -42% 36% 36%
Ashoka Buildcon 27 18,704 11,090 12,562 7,241 69% 41% 46% 27% 13% 11%
GR Infra 169 20,036 15,025 227 (644) 12% 9% 0% 0% 9% 9%
HG Infra 41 7,737 6,599 (705) 718 19% 16% -2% 2% 17% 15%
Sadbhav Engineering 7 4,562 4,495 (4,533) 2,452 62% 61% -61% 33% 39% 43%
PSP Projects 19 2,946 1,634 99 (540) 16% 9% 1% -3% 4% 4%
Source: Systematix Research, Company, Bloomberg
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 185
20 December 2021 PNC Infratech
FY18
FY12
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Order Book (Rs bn) Orderbook to sales (x) (RHS) Revenue (Rs bn) Revenue Growth (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21E
FY22E
FY23E
5%
0%
EBITDA (Rs bn) EBITDA (%) (RHS)
CAGR (FY13-16) CAGR (FY16-20) CAGR (FY20-23)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 186
20 December 2021 PNC Infratech
Strong and consistently high OCF/FCF conversion from EBITDA
The average OCF (post interest expense) to EBITDA conversion ratio of 74% over
FY13-20 speaks highly of PNCL’s strong control over its margins, working capital and
subsequently cash generation capabilities.
Similarly, its FCF (post interest expense) to EBITDA conversion ratio has been at 64%
over FY13-20, which again is amongst the highest in the industry. Not surprisingly,
PNCL is among the few companies in the EPC space to have negligible interest
expenses and is debt-free at the parent level despite exposure to HAM projects.
Exhibit 29: Improvement in margins has led to better RoCE Exhibit 30: WC cycle and D/E under control and amongst the best
35
200 0.6
30 180
0.5
160
25
140
0.4
20 120
100 0.3
15
80
10 0.2
60
40
5 0.1
20
0 0 0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
RoE (%) RoCE (%) Working Cap (Days) Total D/E (x) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
6 200%
150%
4
100%
2 50%
- 0%
-50%
(2)
-100%
(4) -150%
FY16
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
OCF - Net Interest Expense (Rs bn) FCF - Net Interest Expense (Rs bn) OCF/EBITDA FCF/PAT
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 187
20 December 2021 PNC Infratech
Exhibit 33: Key assumptions
Rs mn FY19 FY20 FY21 FY22E FY23E
Order inflow 79,889 12,969 79,444 59,583 65,541
Revenues 30,969 48,779 49,254 58,090 64,233
EBITDA margin 14.8% 15.7% 13.7% 13.4% 13.8%
Order book 122,100 86,290 116,480 117,973 119,282
Ob to sales (x) 3.9 1.8 2.4 2.0 1.9
Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 188
20 December 2021 PNC Infratech
Exhibit 35: PNCL deservedly trading above its long-term mean P/E
25
20
15
10
0
Nov-15
Nov-18
Nov-21
Nov-16
Nov-17
Nov-19
Nov-20
Sep-17
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Sep-15
Sep-16
Sep-18
Sep-19
Sep-20
Sep-21
May-15
Mar-16
May-16
Mar-17
Mar-18
May-17
May-18
Mar-19
May-19
Mar-20
Mar-21
May-20
May-21
Jan-18
Jan-21
Jan-16
Jan-17
Jan-19
Jan-20
Jan-22
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 189
20 December 2021 PNC Infratech
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 190
20 December 2021 PNC Infratech
FINANCIALS (STANDALONE)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net sales 48,779 49,254 58,090 64,233 70,595 Cash & bank balance 7,401 7,683 5,252 4,796 4,982
RM expenses -33,710 -34,965 -41,418 -45,734 -50,264 Debtors 8,035 8,392 11,936 13,199 14,506
Gross Profit 15,070 14,289 16,672 18,499 20,331 Inventory 2,673 3,536 5,570 6,159 6,769
Employee expenses -2,651 -2,791 -3,070 -3,377 -3,715 Loans & advances 5,988 6,829 7,749 8,718 9,807
Other expenses -4,775 -4,771 -5,809 -6,263 -6,883 Other current assets 5,555 6,842 7,397 8,321 9,362
EBITDA 7,643 6,728 7,793 8,859 9,734 Total current assets 29,652 33,282 37,905 41,193 45,426
Margin % 15.7% 13.7% 13.4% 13.8% 13.8% Investments 7,355 8,470 12,470 16,470 20,470
Depreciation -1,264 -1,124 -1,495 -1,611 -1,758 Net fixed assets 5,880 6,592 6,346 5,985 5,478
EBIT 6,379 5,604 6,298 7,248 7,976 Total assets 42,888 48,344 56,721 63,648 71,374
Interest expenses -1,144 -771 -1,162 -1,092 -1,059 Current liabilities 16,290 16,717 21,251 23,769 26,535
Other Income 885 752 842 931 1,059 Provisions 108 238 245 253 260
Pre-tax profit 6,120 5,585 5,978 7,088 7,976 Total current liabilities 16,398 16,955 21,497 24,022 26,795
Taxes -1,517 -1,966 -1,853 -2,197 -2,472 Borrowings 2,238 2,529 2,529 2,529 2,529
Recurring PAT 4,603 3,619 4,125 4,891 5,503 Net Deferred Tax liability (1,215) (225) (225) (225) (225)
Margin % 9.4% 7.3% 7.1% 7.6% 7.8% Total liabilities 17,422 19,259 23,800 26,325 29,099
Non-recurring Items 0 0 0 0 0 Paid-up capital 513 513 513 513 513
Reported PAT 4,603 3,619 4,125 4,891 5,503 Reserves & surplus 24,953 28,572 32,408 36,809 41,762
Recurring EPS (Rs) 17.9 14.1 16.1 19.1 21.5 Net Worth 25,466 29,085 32,921 37,322 42,275
Cash EPS (Rs) 22.9 18.5 21.9 25.3 28.3 Total equity & liabilities 42,888 48,344 56,721 63,648 71,374
DPS (Rs) 1.2 0.5 1.1 1.9 2.1 Book Value/share (Rs) 99.3 113.4 128.3 145.5 164.8
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 191
20 December 2021 India Infrastructure Sector
ANNEXURE
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 192
20 December 2021 India Infrastructure Sector
Exhibit 1: Top-20 road projects in the NIP (Rs bn)
Sr. Project Spent Project Land
Name Current Status State Project Type Project Brief
No Cost till Mar-19 Status Acquired?
Pradhan Mantri Gram Sadak SH/District New
1 Implementation Pan India 3,600 2,040 Not Disclosed No
Yojana Road construction
Nagpur- Mumbai Super NH/ New
2 Implementation Maharashtra 553 85 Notice to Proceed Yes
Communication Expressway Expressway construction
NH/ New
3 Ganga Expressway Implementation Uttar Pradesh 415 - Notice to Proceed No
Expressway construction
MH/KT Border-Bangalore Road SH/District New
4 Conceptualization Karnataka 312 - Idea Stage No
Development Road construction
Tamil Nadu District Roads SH/District
5 Conceptualization Tamil Nadu 310 - Idea Stage Upgradation Yes
Upgradation Road
Tamil Nadu District Roads SH/District
6 Conceptualization Tamil Nadu 240 - Idea Stage Upgradation Yes
Upgradation Road
Andhra Pradesh Rural Areas Road Andhra DPR/Feasibility in SH/District New
7 Development 240 - No
Upgradation Pradesh Progress Road construction
Andhra Pradesh Rural Areas Road Andhra DPR/Feasibility in SH/District New
7 Development 240 - No
Upgradation Pradesh Progress Road construction
Amravati- Mydukur Road Andhra SH/District New
8 Conceptualization 233 - Idea Stage No
Development Pradesh Road construction
Purvanchal Expressway Road NH/ New
9 Implementation Uttar Pradesh 225 84 Notice to Proceed No
Construction Expressway construction
Andhra SH/District New
10 GVMC & VMC Road Construction Conceptualization 195 - Idea Stage Yes
Pradesh Road construction
Andhra SH/District
11 Andhra Pradesh Road Upgradation Implementation 173 - Notice to Proceed Upgradation No
Pradesh Road
JH/WB Border-Kolkata Road SH/District New
12 Conceptualization West Bengal 167 - Idea Stage No
Development Road construction
Andhra SH/District
13 Andhra Pradesh Road Upgradation Implementation 166 - Notice to Proceed Upgradation No
Pradesh Road
Mukhya Mantri Gram Sadak Yojana SH/District New
14 Implementation Gujarat 153 - Notice to Proceed No
Implementation Road construction
Bundelkhand Expressway Road NH/ New
15 Implementation Uttar Pradesh 148 6 Notice to Proceed No
Construction Expressway construction
SH/District New
16 Chennai-Trichy Road Development Conceptualization Tamil Nadu 145 - Idea Stage No
Road construction
Hyderabad-TL/MH Border Road SH/District New
17 Conceptualization Telangana 142 - Idea Stage No
Development Road construction
Madhya DPR/Feasibility in SH/District New
18 MP Road Construction Development 141 - Yes
Pradesh Progress Road construction
TL/AP Border-AP/KT Border Road Andhra SH/District New
19 Conceptualization 134 - Idea Stage No
Development Pradesh Road construction
SH/District New
20 Dhule-Thane Road Development Conceptualization Maharashtra 127 - Idea Stage No
Road construction
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 193
20 December 2021 India Infrastructure Sector
Exhibit 2: Top-10 ports proposed under NIP (Rs bn)
Total
Sr. Mode of
Name Current Status State Project Project Status Project Brief
No Implementation
Cost
1 Vadhvan Port Conceptualization Maharashtra 161 EPC Not Disclosed Development of Port
Transhipment Port at Andaman & DPR/Feasibility Study in
2 Development 50 PPP Development of Port
South Bay Nicobar Progress
Machilipatnam Deep Andhra
3 Conceptualization 47 EPC Not Disclosed Development of Port
Water Port Pradesh
Prakasam Andhra
4 Conceptualization 37 EPC Not Disclosed Development of Port
Ramayapatnam Port Pradesh
Bhavanapadu Andhra
5 Conceptualization 34 EPC Not Disclosed Development of Port
Greenfield Port Pradesh
Terminal 4 - Phase 2 DPR/Feasibility Study in
6 Development Maharashtra 32 PPP Development of Terminal
JNPT Container Progress
Deepening of Inner
DPR/Feasibility Study in
7 Harbour For Handling Development Odisha 30 EPC Development of Harbour
Progress
Construction
8 Kutch SPM Terminal Implementation Gujarat 28 PPP Not Disclosed Development of Terminal
Kona village Greenfield Andhra
9 Development 26 PPP DPR Approved Development of Port
Port Pradesh
Greenfield commercial Andhra Financial Closure
10 Implementation 21,230 PPP Development of Port
Kakinada SEZ Port Pradesh Achieved
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 194
20 December 2021 India Infrastructure Sector
Exhibit 4: Top-20 urban public transport projects planned under NIP (Rs bn)
Sr.
Name Current Status Project Cost Spent till Mar-19 Project Status Project Type
No
1 Chennai Metro Rail Phase II Development 692 - DPR Approved Metro
Integrated Transport
2 Tamil Nadu Mass Public Transit Conceptualization 500 - Idea Stage
Hub
3 Delhi Metro Rail Phase III Development Implementation 486 435 Notice to Proceed Metro
4 Delhi-Gurugram SND NCRTC Development 362 0 DPR Approved Metro
5 Navghar-Balavali Multi Modal Corridor Development 348 - DPR Approved Metro
6 MUTP-III A Procurement Development 337 0 Design work Metro
7 Delhi-Ghaziabad-Meerut RRTS Implementation 303 2 Notice to Proceed Metro
8 Metro Rail Construction Conceptualization 300 - Idea Stage Metro
10 Bangalore Metro Rail Phase-2 Implementation 264 47 Notice to Proceed Metro
11 Delhi Metro Rail Phase-IV Development Implementation 249 - Notice to Proceed Metro
12 Mumbai Metro Rail Construction Implementation 231 94 Notice to Proceed Metro
13 Metro Lite Rail Development Conceptualization 210 - Idea Stage Metro
TN Integrated Urban Road
14 Conceptualization 150 - Idea Stage Road/Traffic Infra
Development
Integrated Transport
15 TN Transport Infrastructure Expansion Conceptualization 150 - Idea Stage
Hub
16 Wadala-Kasarwadavali Metro Rail Implementation 145 2 Notice to Proceed Metro
17 Patna Metro Rail Construction Implementation 134 - Notice to Proceed Metro
18 Thane Metro Rail Construction Development 131 - DPR Approved Metro
19 Delhi Metro Rail Phase-IV Development Development 131 - DPR Approved Metro
20 Surat Metro Rail Construction Implementation 120 0 Notice to Proceed Metro
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 195
20 December 2021 India Infrastructure Sector
Exhibit 6: Top-5 Sewage collection projects in the NIP (Rs bn)
Sr. Project Project Funding source
Name Current Status State Promoter
No Cost Status Centre State External Aid
Waste Water Management
1 Conceptualization Tamil Nadu States/UTs 100 Idea Stage - 100 -
Project
Water Supply and Septage Andhra
2 Implementation States/UTs 52 Notice to Proceed - - 26
Management Project Pradesh
Chennai Sewerage
3 Conceptualization Tamil Nadu States/UTs 20 Idea Stage - 20 -
Infrastructure Project
Ahmedabad Construction of
4 Development Gujarat States/UTs 15 DPR Approved - 15 -
ETP Project
Smart City Upgradation and DPR/Feasibility
5 Development Chandigarh Centre 9 - - -
Sewage Development Project Study in Progress
Source: Systematix Research, India Investment Grid
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 196
20 December 2021 India Infrastructure Sector
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 197
20 December 2021 India Infrastructure Sector
DISCLOSURES/APPENDIX
I. ANALYST CERTIFICATION
I, Amar Kedia, hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all of the subject securities or issuers referred to in
this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report by
Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain independence and objectivity in making any
recommendations.
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:
1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.
2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the
month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.
4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or
services from the company(ies) covered in this report in the past twelve months.
5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous
twelve months.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research
report.
7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.
8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.
9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:
Sr. Yes /
Particulars
No. No.
1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No
2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report. No
Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the
4 No
previous twelve months.
Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other
5 No
products or services from the company(ies) covered in the research report in the last twelve months.
10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.
STOCK RATINGS
BUY (B): The stock's total return is expected to exceed 15% over the next 12 months.
HOLD (H): The stock's total return is expected to be within -15% to +15% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns of more than 15% over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.
INDUSTRY VIEWS
ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise
due caution while acting on it. Description of any company(ies) or its/their securities mentioned herein are not complete and this document is not and should not be construed as an
offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not guaranteed and
a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information
contained in the report, are subject to change without notice. Prices and availability of financial instruments are also subject to change without notice. This report is intended for
distribution to institutional investors.
This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or
its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any individual in such country, especially USA, the same
may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United States (to U.S. persons), Canada, or
Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication,
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 198
20 December 2021 India Infrastructure Sector
redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link,
is prohibited by law and will result in prosecution. The information contained in the report is intended solely for the recipient and may not be further distributed by the recipient to any
third party.
SSSIL generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover. Additionally, SSSIL generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of
any companies that they cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that
reflect opinions that are contrary to the opinions expressed herein. Our proprietary trading and investing businesses may make investment decisions that are inconsistent with the
recommendations expressed herein. The views expressed in this research report reflect the personal views of the analyst(s) about the subject securities or issues and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The
compensation of the analyst who prepared this document is determined exclusively by SSSIL; however, compensation may relate to the revenues of the Systematix Group as a whole, of
which investment banking, sales and trading are a part. Research analysts and sales persons of SSSIL may provide important inputs to its affiliated company(ies).
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations which could have an adverse effect on their value or price or the income
derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. SSSIL, its directors, analysts
or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on the basis of this report
including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
SSSIL and its affiliates, officers, directors, and employees subject to the information given in the disclosures may: (a) from time to time, have long or short positions in, and buy or sell, the
securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation (financial interest)
or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential material
conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of the analyst and the company may or may not subscribe
to the views expressed therein.
SSSIL, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall SSSIL, any of its affiliates or any third
party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The company accepts no liability whatsoever for the actions of
third parties. The report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of the company, the
company has not reviewed the linked site. Accessing such website or following such link through the report or the website of the company shall be at your own risk and the company
shall have no liability arising out of, or in connection with, any such referenced website.
SSSIL will not be liable for any delay or any other interruption which may occur in presenting the data due to any technical glitch to present the data. In no event shall SSSIL be liable for
any damages, including without limitation, direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by SSSIL
through this presentation.
SSSIL or any of its other group companies or associates will not be responsible for any decisions taken on the basis of this report. Investors are advised to consult their investment
and tax consultants before taking any investment decisions based on this report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 199