Companies & Sectors
Slowdown in infrastructure sector is likely to continue, says Anand Rathi

Specific to NCC Limited, asset sale and lower working capital would provide liquidity for quicker execution of projects this year, forecasts Anand Rathi

A large number of external developments —reforms delay, tightening interest rates, high inflation and dearth of funds—have knocked the wind out of India’s infrastructure industry, pointed out Dr AVS Raju, chairman emeritus, NCC at the company’s AGM. In this bleak scenario, individual companies in the sector are finding their own solutions to achieve profitability in their operations.


Brokerage firm Anand Rathi says that NCC has good prospects, as the company repaid debt of about Rs3 billion in 4QFY13, with cash flow from sale of real estate and Himachal Sorang (power project), and reduced working capital. Benefit of the same is likely to flow in FY14. Further, asset sale and lower working capital would provide liquidity for quicker execution of projects this year.  As NCC has its focus on balance-sheet improvement, Anand Rathi has a ‘Buy’ recommendation for the company’s stock with a target price of Rs61 (current market price of Rs27).


The company’s focus on lowering working capital has led reducing debtors to 70 days in FY13, from 88 days in FY12.


The company aims at 15% revenue growth in FY14. Anand Rathi expects it to maintain its 8% EBITDA margin in FY14/15 supported by the higher proportion of the NCC power project to revenue (mainly through the low-margin BTG component).


While the company’s management is optimistic and Anand Rathi’s forecast is favourable, there is still uncertainty in Andhra Pradesh’s political climate. Uncertainty over splitting of Andhra/ Telengana has held up investments and growth. It is expected that there will be clarity on this factor together with elections in 2014 and the commissioning of a few major power plants, to trigger growth. 


According to Anand Rathi, other macro-economic factors which could affect the company adversely include rise in interest rates and slowdown in order inflows in the infrastructure sector.


The company’s projected financials as per Anand Rathi’s analysts are given below:



Ramky Infrastructure’s balance sheet is likely to be stressed for 3-4 quarters, says Anand Rathi

On a stretched balance sheet and working capital constraints, execution has slowed for Ramky Infrastructure. This, coupled with high interest burden, has lowered profitability. With further requirement of equity for BOT projects, balance sheet could be stressed for 3-4 quarters. Brokerage Anand Rathi has recommended a ‘Buy’ on the stock

Ramky Infrastructure (Ramky Infra) is an integrated construction, infrastructure development and management company in India. Since commencement of business in 1994, the company has delivered a range of construction and infrastructure projects in various sectors such as water, wastewater, transportation, irrigation, industrial construction, parks (including SEZs), power transmission, power distribution, residential, commercial and retail property.


Brokerage house Anand Rathi has analysed the conference call of Ramky Infrastructure. The brokerage highlights the following takeaways:


Ramky Infrastructure’s order book stands at Rs120 billion (4x FY13 revenue), dominated by transportation (40%), buildings (17%), water (17%) and irrigation (14%). Order inflows during FY13 were Rs13.4 billion. The company has targeted an order inflow of Rs20 billion in FY14, the Anand Rathi report noted.


Following slower execution due to working capital constraints, revenue declined 1.8% y-o-y, while the EBITDA margin stood at 8.9% (down 150 bps y-o-y). The management is aiming at 15%-20% growth in FY14 and expects to maintain the margin at present levels. However, due to higher interest costs, the net-profit margin stood at 2% (down 260 bps).


On the higher working capital required and investment in BOTs, debt increased from RS9.5 billion a year ago to around Rs12 billion in FY13, taking net gearing to 1.1x. Working-capital days have increased from 141 to 162.


Of the total around Rs10 billion required, Rs4.3 billion has been invested by the company towards its BOT projects. The remaining equity would be funded through internal accruals in the next 2-3 years. The equity requirements are more back-ended.


Anand Rathi believes that on the back of a stretched balance sheet and working capital constraints, execution has slowed. With further equity funding required for its BOT projects, the company’s balance sheet is likely to be stressed for 3-4 quarters. At the current price, the stock trades at a P/BV of 0.3x FY14/15 consensus estimates. The brokerage has a Buy rating on the stock, with a sum-of-parts target of Rs101, based on 4x PE of the FY14e construction business (Rs63) and 0.5x P/BV for its investment in Road and other projects (Rs38). However, the brokerage states that a rise in interest rates would pose a risk to its business prospects.


SEBI cracks whip on Gillette promoters, directors

SEBI also prohibited the promoters and directors of the company, from dealings in the shares of Gillette India, except for meeting the minimum 25% public shareholding limit, till the time of their compliance to this requirement

Taking action against promoters of Gillette India for non-compliance to minimum public holding norms, the Securities and Exchange Board of India (SEBI) on Friday ordered freezing all corporate benefits arising out of their stake in the company.


Besides, SEBI also prohibited the promoters and directors of the company, which is part of global consumer goods giant P&G, from dealings in the shares of Gillette India, except for meeting the minimum 25% public shareholding limit, till the time of their compliance to this requirement.


In addition to these interim orders, SEBI also warned the company, its promoters and directors of further penal actions including monetary penalties, prosecution proceedings and restriction in its trading, in the event of continued non- compliance. The company has been asked to present its case before SEBI within 21 days.


The order follows the disposal of Gillette’s appeal by the Securities Appellate Tribunal (SAT) on 3rd July against a previous decision by SEBI, wherein a proposed scheme of shareholding arrangement to meet the norms was rejected.


Gillette had offered to classify a senior Indian executive as a public shareholder, from a promoter entity previously to meet the norms, but SEBI rejected it.


As per minimum public holding norms, all private sector listed companies were required to achieve at least 25% public shareholding by 3 June 2013. A day after this deadline passed, SEBI on 4th June passed similar orders against 105 companies, but Gillette was not part of those actions, as the company had at that time got an interim relief from SAT.


While dismissing Gillette’s appeal, SAT also vacated that interim stay in its 3rd July order and paved way for SEBI to take necessary actions against the company.


As per SEBI’s order, Gillette India’s promoters and directors have also been restrained from taking up any new position as a director of any listed company till the time the company meets the minimum public holding norms.


SEBI has ordered “direct freezing of voting rights and corporate benefits like dividend, rights, bonus, shares, split, etc. with respect to the excess of proportionate promoter/promoter group shareholding of Gillette till such time these companies comply with the minimum public shareholding requirement”.


With regard to progress made in meeting the norms, the regulator also directed Gillette’s board/audit committee to submit compliance report every quarter to the stock exchanges where its shares are listed.


“... in the interest of all investors and the orderly development of the securities market, it is necessary to pass directions against the promoter/promoter group and directors of Gillette while not adversely affecting the interests of the public shareholders,” it added.


Gillette India is jointly promoted by the Procter and Gamble Co and Poddar Group. The promoters hold 88.76% in Gillette.


In 2012, the company had proposed a three-stage plan to bring down the promoter holding to 75%, which was turned down by SEBI as it involved reclassification of a top company executive as non-promoter entity.


Following SEBI’s refusal, Gillette had filed an appeal with SAT, which had then directed the market regulator “to pass a speaking order” the company’s proposal, in February, this year.


Accordingly SEBI had issued a letter to the company rejecting its proposal and advising Gillette to comply with the minimum public shareholding norms within the stipulated timeline.


On 3rd July, responding to Gillette’s plea SAT upheld SEBI’s decision that rejected the company's proposal and also vacated an interim stay given on 30th May.


SEBI had directed all listed private companies to have at least 25% public shareholding by 3 June 2013.


In its order, SEBI noted that promoters and directors of were “mainly responsible” for the non-compliance of companies with the minimum public shareholding norms.


According to the market regulator, the promoters of non-compliant companies “would have an advantage on account of their disproportionate stake compared to the public in their respective companies and also place them in more advantageous position as compared to the promoters of the compliant companies on account of violating the regulatory requirement”.


SEBI said that the disproportionate advantage arising out of non-compliance of the norms should not be permitted to be vested with the promoter/promoter group.


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