A particular bright spot for listed EPC firms has been awarding of contracts for national highways, the NHAI has awarded 1330 km of highways in the fiscal first half(Sakib Ali /Hindustan Times)
A particular bright spot for listed EPC firms has been awarding of contracts for national highways, the NHAI has awarded 1330 km of highways in the fiscal first half(Sakib Ali /Hindustan Times)

EPC firms see jump in orders from government

During July-September, fresh investment proposals rose 67.2% in terms of new projects and by 107.1% in terms of project investments on a quarter-on-quarter basis. In all, 2,219 new projects entailing a total investment of Rs 2.19 trillion were announced in Q2.
Livemint, New Delhi | By Tanya Thomas
UPDATED ON NOV 26, 2020 09:45 AM IST

After a dismal June quarter, order books are swelling at India’s top engineering, procurement and construction (EPC) companies, driven by higher government spending in infrastructure and a swift economic rebound.

At the end of September, Larsen and Toubro, India’s largest integrated EPC and capital goods company, had an order book of nearly Rs 2.99 trillion. This was only about 1% below Rs 3.03 trillion exactly a year ago. However, the company has won large contracts in high-speed rail and rapid transit systems after September.

Dilip Buildcon, another prominent name in the EPC segment, saw its order book grow nearly 27% from the year earlier. Similarly, Kalpataru group company JMC Projects, which builds transmission lines, roadways and bridges, saw its order book jump as much as 46% during the period, mainly aided by project wins in the government sector.

“The order wins in Q2 have been 19% higher than wins in Q1,” R. Shankar Raman, whole-time director and chief financial officer, L&T said recently. “Orders have come essentially from infrastructure spending, despite worries on government programmes and capital expenditure spending by PSUs. Capital spending is now higher in water, power transmission, metros, railways, roads and expressways.”

“EPC companies have reported a strong order book growth in Q2, after weak ordering in FY19 and FY20, it has recovered this year,” Alok Deora, vice-president, Yes Securities said. “On average, their order books are at about three times their annual revenue, versus an average of about 1.5-2 times. Despite the pandemic, awarding activity from the central government has been strong. NHAI’s awarding has been 50% higher in the first six months of this fiscal, compared to the same period last year. Growth is also strong in railways, mining and irrigation. Now with the monsoon over and almost 100% of labour returning to project sites, execution in the second half will be strong.”

During July-September, fresh investment proposals rose 67.2% in terms of new projects and by 107.1% in terms of project investments on a quarter-on-quarter basis, according to data from Projects Today. In all, 2,219 new projects entailing a total investment of Rs 2.19 trillion were announced in Q2, rising from 1,327 new projects worth Rs 1.05 trillion in Q1.

A particular bright spot for listed EPC firms has been awarding of contracts for national highways. The NHAI has awarded 1330 km of highways in the fiscal first half, which was 1.6 times FY20 and 3.5 times FY19 levels. For the awarded projects, NHAI has already completed at least 80% of the land acquisition. The NHAI has set a target of awarding 4,500 km of projects during FY21.

NHAI has also used digital banking to disburse about Rs 100 billion to contractors, boosting their cash flows. It has also set up a dispute resolution board for speedy resolution while the projects are in progress. The NHAI has also made changes to the concession agreement on hybrid annuity projects, linking annuity payments to bank lending rates.

Credit ratings agency Icra said in a report last month that the Union government will maintain its pace of infrastructure spending given its positive multiplier effect on the overall economy. “The state governments in particular are staring at a huge revenue deficit in the current financial year; and therefore, the headroom available to them for incurring capital expenditure has reduced substantially. The private sector capex and the interest in public private partnership-based infrastructure projects is also expected to be limited in the near term, due to increased risk averseness and limited capital availability. As a result, EPC projects in roads and rail are expected to witness heightened competition.”

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