EPC firms see jump in orders from government

After a dismal June quarter, order books are swelling at India’s prime engineering, procurement and development (EPC) firms, pushed by greater authorities spending in infrastructure and a swift financial rebound.

At the top of September, Larsen and Toubro, India’s largest built-in EPC and capital items firm, had an order e-book of almost Rs 2.99 trillion. This was solely about 1% beneath Rs 3.03 trillion precisely a yr in the past. However, the corporate has gained massive contracts in high-speed rail and speedy transit techniques after September.

Dilip Buildcon, one other distinguished identify within the EPC section, noticed its order e-book develop almost 27% from the yr earlier. Similarly, Kalpataru group firm JMC Projects, which builds transmission traces, roadways and bridges, noticed its order e-book soar as a lot as 46% through the interval, primarily aided by venture wins within the authorities sector.

“The order wins in Q2 have been 19% higher than wins in Q1,” R. Shankar Raman, whole-time director and chief monetary officer, L&T mentioned just lately. “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 mentioned. “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, recent funding proposals rose 67.2% when it comes to new tasks and by 107.1% when it comes to venture investments on a quarter-on-quarter foundation, in keeping with information from Projects Today. In all, 2,219 new tasks entailing a complete funding of Rs 2.19 trillion had been introduced in Q2, rising from 1,327 new tasks value Rs 1.05 trillion in Q1.

A selected vibrant spot for listed EPC companies has been awarding of contracts for nationwide highways. The NHAI has awarded 1330 km of highways within the fiscal first half, which was 1.6 occasions FY20 and three.5 occasions FY19 ranges. For the awarded tasks, NHAI has already accomplished no less than 80% of the land acquisition. The NHAI has set a goal of awarding 4,500 km of tasks throughout FY21.

NHAI has additionally used digital banking to disburse about Rs 100 billion to contractors, boosting their money flows. It has additionally arrange a dispute decision board for quick decision whereas the tasks are in progress. The NHAI has additionally made adjustments to the concession settlement on hybrid annuity tasks, linking annuity funds to financial institution lending charges.

Credit scores company Icra mentioned in a report final month that the Union authorities will preserve its tempo of infrastructure spending given its positive multiplier impact on the general financial system. “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.”