Jul 8, 2010|
Pre earnings analysis - Construction pack
First quarter results for this fiscal are just around the corner. We hereby present a short write up on how this quarter should pan out for the construction universe companies as a whole.
Due to the general economic slowdown, construction companies had seen their growth rates topple down during the past couple of years. However, 4Q FY10 came as a positive surprise. At Rs 922.9 bn, the construction sector registered the highest ever order backlog recorded in any quarter till date.
Following is the list of order back log and growth rates for the construction companies over the past few quarters.
Source: Business Standard
||Order Book (Rs bn)
A look at the above table suggests that the concerns persisting with respect to order backlog have started easing off. Although the trend suggests a quarter of negative growth followed by a positive one it should be noted that the last quarter's order back log is at a historical high. Further, we believe the party is not over as yet. With government taking steps in the right direction one can expect to see a lot of action especially in the road and power sector in the upcoming quarters.
First quarter is traditionally the weakest quarter for the companies as construction activity literally comes to a standstill during monsoons. As a result, we do not expect a lot of fireworks in 1Q FY11. However, it should be noted that on a y-o-y basis, majority of companies should report revenue growth in high double digits due to low base effect coupled with strong order inflow recorded in the last quarter.
Margins are likely to witness a marginal improvement of 20-30 bps in this quarter as steel and crude oil prices have remained soft due to weak global demand. Even cement prices have remained southbound due to commissioning of large capacities. However, interest cost is likely to increase with government raising rates recently to control inflation. But the entire impact is likely to be visible in the next quarter as rate increase came into the effect at the end of 1Q FY11.
We believe FY11 could be one of the best years for the construction universe if the companies manage to execute the projects as perceived. Favorable business environment may lead management to revise their guidance on the upside.
Considering the recent developments we believe that the construction pack is ripe for re-rating. The construction stocks have already outperformed the broader markets in the recent past. However, given the strong order book position and long term positive outlook, we believe there are quite a few opportunities in the construction space for a medium to long-term investor even after the recent run up.
More Views on News
Sorry! There are no related views on news for this company/sector.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407