A rise in government spending on infrastructure and a rebounding economy have helped Indian infrastructure and capital goods companies bag record order wins, with some even registering all-time highs. However, despite expectations of a rise in private sector capex, the bulk of infrastructure investments continue to be driven by state and Central governments.
The total order book position of 25 top major companies — across infrastructure, power and capital goods – rose 16.1% to Rs 11.47 trillion as of September 30, compared with Rs 9.88 trillion as of September end last year.
Engineering and construction major Larsen and Toubro (L&T) topped the charts with an order book position of Rs 4.51 trillion, a 21.8% rise from Rs 3.70 trillion recorded last year. Bharat Heavy Electricals, with an order book position of Rs 1.14 trillion (7.6% rise) came in second, followed by Hindustan Aeronautics (HAL) at Rs 82,000 crore.
“Some of the major players have secured significant overseas orders, mainly in the energy sector. Meanwhile, in the domestic arena, awards are happening in urban infrastructure, energy and defence. Awarding in certain sectors like road is stagnant, mainly because of base effect as awarding over the last 2-3 years has been healthy,” Anand Kulkarni, director at Crisil Ratings, said.
“While the fourth quarter is generally favourable for new project awards, with the upcoming election, the timeline of awarding of contracts in the second half remains to be seen,” Kulkarni said, adding that private capex, which is still not broad-based, was not the primary driver for order book growth.
With execution gaining pace across sectors as the monsoon withdrew, the order books of some of the companies dipped during the reporting period. HAL recorded a 2.2% dip and the order book of Mazagon Dock Shipbuilders fell 12.8%, while that of Dilip Buildcon fell by 8.9%. Other companies such as Ashoka Buildcon (0.7%), PNC Infratech (29.5%), HG Infra (1.6%) and KNR Construction (7.3%) also recorded a fall in their order book position.
According to Ashish Modani, vice-president and co-group head at Icra: “Icra has seen adequate order book position across most construction entities, against the backdrop of strong impetus on infrastructure investment by the Centre and state governments. Ahead of the general elections in April-May 2024, we are witnessing strong execution momentum in roads, rural housing, urban infrastructure and water-related segments.”
“The entities present in drinking and sewage water projects have witnessed strong order book build-up and revenue growth in recent times. In fact, the private sector investments, which were relatively muted during 2016-2021, also picked up momentum in segments such as data centre, industrial and warehousing segment and commercial real estate. However, the bulk of the infrastructure capex is driven by government investment only,” he said.
Against the backdrop of these order books, Icra was expecting construction entities to register a healthy 12-15% revenue growth in FY24.
Earlier in a post-earnings call, L&T chief financial officer R Shankar Raman said that the company’s order book position was the highest ever for the firm, with order wins coming in from both hydrocarbons and infrastructure. Of this, 35% was from international markets.
L&T head (investor relations) P Ramakrishnan said in an analysts’ call that the domestic order prospects pipeline is robust in the infrastructure segment, and there are no such indications that it is drying down.
The capex plans of India Inc were also on the rise. According to Crisil, the capex of sectors it tracks – which was about Rs 5-5.3 trillion in FY23 — is expected to grow by 12-14% to Rs 6 trillion in FY24. New-age sectors such as green hydrogen, solar modules and semiconductors are expected to grow by four times in FY24, increasing their share to 11% from 3% in FY23.