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Real Estate & Infrastructure - Q1FY21 Result Preview - ICICI Securities

Posted On: 2020-07-13 06:20:27

The Q1FY21E earnings for the construction as well as real estate universe will be one of the weakest in recent memory. For construction companies, near insignificant work in April followed by labour unavailability and supply chain issues in May and June is likely to plague execution. We note that labour availability at overall level continues to be at ~50-70% across projects even in June. With the onset of monsoon, execution pickup is only likely by H2FY21E. For real estate companies, amid stable commercial segment, the pain will be largely felt owing to rental wavier for lockdown period, near non-operational hospitality portfolio, weak residential volume offtake and overall weakness in execution due to labour issues.

Infrastructure: Labour availability to hit execution

A mixed trend was seen for order inflows across the construction universe. NCC has announced order inflows worth Rs. 2532 crore in Q1 with majority of the inflows in the water segment. PNC has 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, Government of Telangana 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 near negligible execution in March followed by sub-optimal labour availability of ~40-60% during April, May, 2020 to impact execution sharply for all the companies. The exception is likely to be KNR that is expected to report relatively resilient revenues (~9.5% YoY decline) given the benign base and execution in irrigation projects. On an overall basis, we expect our road & construction universe to post revenue de-growth by 44.7% YoY to Rs. 2683 crore. The EBITDA margin of our universe is expected to contract 290 bps YoY to 10.4%, given the negative operating leverage. Overall, we expect our universe PAT to de-grow 96.9% YoY to Rs. 9.2 crore in Q1FY21E with weakness in operating performance exacerbated by interest costs.

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Source: Equity Bulls

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