Road to rapid growth

Road to rapid growth
The Hindu Business Line, July 7, 2009, Page 21

Vidya Bala

If there is any sector that can boast of walking away with most goodies from the Budget 2009-10, it is infrastructure. Be it the allocation for highways or irrigation programmes, rural development or accelerated power reforms, the increased infrastructure spending has been the key highlight of the Budget. Clearly, the sector is being viewed as the key driver of economic growth .

The beneficiaries from such a massive infrastructure spending range from companies in the business of infrastructure development and contracting to even those that execute irrigation projects and power distribution and transmission lines.

Expedite road projects

In the road space, the allocation to the National Highways Authority of India has been stepped up by 23 per cent in the current budget compared with the Budget Estimates of 2008-09. Companies such as Gammon Infrastructure Projects, IRB Infrastructure Developers, Larsen & Toubro, Hindustan Construction and Nagarjuna Construction are some of key players in the road space. It merits note that all these players have participated in a number of projects that have been put up for bid so far.

Also, note that that the Government had, through its multiple stimulus packages, ensured reasonable funding for infrastructure projects through IIFCL; this was expected to translate into about Rs 1,00,000 crore of investment in infrastructure. The Budget has, in this regard, suggested another innovative scheme of ‘takeout financing’, wherein a consortium of banks in consultation with IIFCL, can break-up the full tenure of the loan in to shorter periods and take turns to hold the loan portfolio. This would not only help solve the asset-liability mismatch for banks but help fund high-value long-term projects too. Such a move would be crucial for projects in road and power, which are now of a larger ticket size.

The Finance Minister has also indicated the need to remove regulatory and institutional bottlenecks to expedite implementation of infrastructure projects; the UPA government in its previous regime has been criticised for slower implementation, especially of road projects. If this happens, not only would the order inflows of infrastructure companies pick up, it will also result in lower cost over-runs, a bane faced many a times by these companies.

Opportunity for smaller players

The 87 per cent increase in allocation under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will translate into a bigger boost for smaller construction companies.

This scheme, with an allocation of Rs 12,887 crore, is expected to provide a plethora of opportunities to small and mid-sized companies such as Unity Infra Projects, Simplex Infrastructure, Tantia Construction and JMC Projects. Unlike, sub-contracted road projects from developers, urban development projects tend to hold superior profit margins. This apart, spending under the Bharat Nirman (rural roads and housing) is also likely to benefit the smaller players.

For transmission and distribution companies, the blessing comes in the form of a 160 per cent increase in allocation under the Accelerated Power Development and Reform Programme, to Rs 2,080 crore This would translate into orders for transformer and distribution companies that include Crompton Greaves, KEC international, Emco and Jyoti Structures. That the excise duty for this sector remains unchanged is yet another positive as profit margins have been thin for quite a few.

As has been the case in the past couple of years, the allocation to the irrigation space has only been increased, this time by over 70 per cent. IVRCL Infrastructure Projects, Jain Irrigation Systems and Pratibha Industries are likely to see enhanced order book from this spending.

Real estate

It appears that the special packages for the realty sector granted on earlier occasions may be nearing its end. In contrast to the earlier occasions, the Budget may have fallen short of expectations. While on the one hand, the allocation of Rs 3,973 crore towards housing for urban poor and eradication of slums could help broaden the opportunities for companies such as Akruti City and HDIL, on the other, the clarification made under sub-section 10 of Section 80-IB for availing of tax concession could be a drawback for contractors. According to the clarification, only the developer (one who bears the investment risk) can avail of the tax benefits; not the contractor who builds the project.

Similarly, tax benefits availed of for building low- and middle-income housing would be allowed only for sale of a single unit to a buyer (sale of multiple units to same buyer would not be allowed).

Another key limitation for the infrastructure and realty sectors could be the increase in the Minimum Alternate Tax.