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Construction (1QFY20E): Start of a new cycle
* Union budget retained Infra spends: Union budget was not very different from the Interim budget and largely all FY20E spending estimates on Roads, Railways, MRTS etc were retained. We do remain concerned w.r.t the funding scenario at NHAI as a Rs 1/litre increase in fuel cess (~Rs 120bn annually) is precious too little to assuage the shortfall. States’ infra spending may supplement the shortfall at NHAI/MORTH.
* Financial closures (FCs) achieved, Appointed Date (AD) receipt accelerating: Our coverage universe has achieved FC for all projects (ex. new HAMs). Appointed Date is awaited, which is expected by Jul/Sep19E end. Developers/Bankers are insisting on at least 80% land before taking AD, this is also impacting projects’ start. DBL has maximum 5/12 HAMs AD pending whilst KNR/PNC/HG have pending AD for 1 project each. Sadbhav/Ashoka/IRB have 4/2/2 ADs pending.
* Asset monetization seeing strong traction: Our interaction with leading Sovereign wealth funds suggest strong traction for BOT/HAM assets acquisitions. Sadbhav has already announced a stake sale in 9 BOTs. Cube highways, CPPIB, CDPQ, Brookfield etc are evaluating road assets. We expect meaningful asset recycling during FY20E. DBL, Ashoka & PNC may monetize HAM assets during FY20E.
* 1QFY20E aggregates trend: We expect aggregate Revenue/EBIDTA/APAT for our coverage universe (ex Cap Goods) to grow 10.3/4.2/(21.5)% YoY. PNC, Ashoka and HG are expected to post strong results.
* Change in estimate/TP/Reco.: On account of low visibility on AP orders execution we have cut NCC FY20/21E EPS by 28.2/10%. We have cut TP to Rs 154/sh. We have downgraded ITD P/E from 15x to 10x (weak Roe/Roce, increasing debt & infra heavy order book) and cut TP to Rs 95/sh, maintain NEUTRAL. Owing to sharp price performance we have downgraded PSP to NEU from BUY. Top Picks: Larsen, PNC, Ashoka, KNR & HG. Top Picks Buildings: Capacite, Ahluwalia.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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