Following the appointment of a new head at the Ministry for Surface Transport, ordering activity has picked up, and we believe that it is likely to accelerate over the next few months. The National Highways Authority of India (NHAI) has spent the past nine months (during which few orders were awarded) acquiring land and preparing for projects. Companies expect orders for 9,000-11,000km of roads to be given out in FY12, with Rs450-500bn worth of orders over the next 4-5 months. The NHAI's funds are also likely to get a boost in FY12, with Rs100bn of tax-free bonds and Rs90-100bn of fuel cess (a tax levied on all gasoline/diesel sales).
Efforts to accelerate the bidding process …
The NHAI is trying to simplify the bidding process. Requests for qualification (RFQ) will now be valid for a full calendar year, so companies will not have to apply for an RFQ for every project.
… but initial bidding is likely to be very aggressive
Companies are seeing very aggressive bidding for projects so far in 2011. This could be due to: i) efforts to ensure better utilisation of equipment that has been idle for many months now, and ii) some companies being at the fund raising stage, so they need to shore up their order books. We believe bidding is likely to improve over the next 2-3 months as visibility over order
pipelines improves.
Most investor queries focused on the macro/sector environment
Investors were concerned primarily about any changes in the macro environment, such as for order inflows, funding costs and the project-execution environment. Most investors felt valuations are cheap, but that the macro environment needs to be more supportive for stocks to perform.
We continue to prefer well-funded companies
We maintain our positive longer-term view, and prefer companies with strong revenue- and earnings-growth visibility and solid balance sheets.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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