Lack of investments by both government and private sector may affect order flow of construction firms

l&t, construction sector, construction industry While L&T reported a 37% growth in order book during the quarter, it guided for a subdued 10-12% order inflow growth for the full year, only a slight increase over 7% the previous year.

The lack of investments either by the government or the private sector may result in a slowing order book for engineering and construction companies this fiscal, with the June quarter already showing very few signs of a pick-up.

While L&T reported a 37% growth in order book during the quarter, it guided for a subdued 10-12% order inflow growth for the full year, only a slight increase over 7% the previous year. Though state-run power equipment manufacturer BHEL reported a 143% year-on-year (y-o-y) growth in its order book to Rs 4,300 crore, analysts expect a lower order intake this year due to the slow pace of finalisation of awards. Its order backlog also went up by 15%.

Shankar Raman, CFO, L&T, said, the firm is depending more on the government and the public sector for order inflows, adding that the private sector will take another two years to stabilise. While the private sector is in a wait-and-watch mode, infrastructure has been the main lever for growth, he said.

“Unlike every year when the revenue uptick is back-ended, we are looking at front-ended revenue growth for this year since we would be going into an election season towards the end of the year,” Raman added.
Noting the problem areas, L&T said the power sector particularly continues to face business headwinds with intense competition bidding for the limited opportunities on offer in a challenging environment. The order backlog for L&T, at the end of June, was higher by just 3%.

Engineering major Siemens India reported a flat order inflow y-o-y at Rs 2,800 crore, and a drop of 3%, compared with the preceding quarter. Pune-based Thermax Group, too, reported a 13.9% fall while backlog jumped by 29.9% to Rs 6,420 crore. Analysts’ estimates for the company for 2019 are also bleak, projecting a 4% drop in new orders to Rs 6,115.3 crore.

According to data from the Centre for Monitoring Indian Economy, new project investments dropped 21% y-o-y in the first quarter to Rs 2.1 lakh crore. Moreover, this figure was influenced predominantly by two projects of Jet Airways to buy 75 Boeing 737 Max aircraft for Rs 1.3 lakh crore, or two-thirds of the total amount.

“This implies that new investment announcements in the rest of the economy collapsed for all practical purposes,” CMIE said. Encouragingly, the stalled projects declined marginally to 11.11%.

Source: Financial Express