The key theme for Q2FY21E earnings for the construction & real estate universe will be recovery. For construction companies, post a washout Q1, we expect execution to get ramped up in Q2, albeit extended monsoon and still suboptimal execution (execution efficiency ranging at 70-85%) will result in a slightly weak print YoY. However, we expect Q2 to be the last quarter of topline weakness as improved labour availability and post monsoon period will drive recovery. For real estate companies, amid stable commercial segment and improving residential sales volume (albeit weak YoY), the pain will be largely felt owing to rental waiver in the retail segment and near non-operational hospitality portfolio.
Infrastructure: Recovery as expected; growth likely from Q3
A mixed trend was seen for order inflows across the construction universe. NCC announced order inflows worth Rs. 2532 crore in Q1 with majority of the inflows in the water segment. PNC won a HAM project for Meerut-Nazibabad stretch worth Rs. 1412 crore, in Q1FY21. KNR has received two irrigation projects worth Rs. 2309 crore from the irrigation & CAD department, Telangana government in May, 2020. Ashoka Buildcon, on the other hand, signed an EPC agreement for Tumkur-Shivamogga package-III worth Rs. 602 crore, in May 2020. On the execution front, we expect construction companies to see a marked improvement QoQ. However, heavy monsoons coupled with sub-optimal execution efficiency due to labour availability (albeit better than Q1) will result in a weaker topline YoY. KNR is expected to report relatively resilient revenues (up ~1% YoY on an adjusted basis) given the execution in irrigation projects. On an overall basis, we expect our road & construction universe to post revenue de-growth by 9.7% YoY to Rs. 3866 crore. The EBITDA margin of our universe is expected to contract 390 bps YoY to 13.4% (~100 bps on adjusted basis, as base quarter had certain one-offs) Overall, we expect our universe PAT to de-grow 50.5% YoY to Rs. 212.6 crore with weakness in operating performance and certain one-off impacts.
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