Six out of top 10 infra firms struggling to stay afloat

Infrastructure companies are now a dying breed in the country. The swift fall of Mumbai airport operator GVK Power & Infrastructure is just another addition to a steady decline and bankruptcy of construction and infra firms since 2014.

Six of the top 10 infrastructure companies in FY14 have either gone bankrupt or are struggling to stay afloat due to a sharp decline in market capitalisation and declining revenues and profits.

These companies have lost 70 per cent of their market capitalisation in the past six years and four of them are down 90 per cent or more during the period.

NCC has been the top performer with a 128 per cent rise in market capitalisation since FY14 due to strong growth in earnings, though revenues are up just 20 per cent during the period.

The market capitalisation of L&T, the market leader, is up a modest 12.5 per cent since March 2014 while its revenues and profits are up 71 per cent and 94 per cent, respectively, during the period.

But, at its current market capitalisation of ~1.32 trillion, L&T is now four times bigger than the combined figure for the next 19 firms in the industry.

The analysis is based on the top 20 construction and infrastructure companies by revenue in FY14, as captured by the BS1000 list for that year.

GVK Power & Infrastructure’s market capitalisation is down 70 per cent since March 2014 even though its consolidated revenues are up 60 per cent during the period and it turned profitable in FY18 after reporting losses for five consecutive years.

The company has agreed to sell its airport business to the Adani group. This business accounted for 90 per cent of its consolidated revenues.

Similarly, 12 of the top 20 infra firms in 2014 are struggling with more than a 70 per cent decline in market capitalisation in the past six years. Of those, erosion in market capitalisation for eight has been more than 90 per cent during the period.

JP Associates’ net sales in FY20 were a third of what those used to be in FY14, while for Punj Lloyd they have shrunk by nearly 60 per cent before the firm landed in insolvency court last year.

It had a debt of around ~72,000 crore at the end of March 2014 and a debt-toequity ratio of 7.2, making it tough to sustain its operations.

It’s a similar story for Gammon India and IVRCL.

IL&FS Engineering and Era Infra saw more than a 70 per cent decline in revenues between FY14 and FY19. All these firms are now under the corporate insolvency resolution process.

Even relatively well off GMR Infra’s consolidated net sales are down 20 per cent since FY14, and it has reported a net loss for six consecutive years now.

IRB Infra and and Sadbhav Engineering have reported strong growth in revenue and profit.

Analysts attribute the decline in the industry to a combination of investment slowdown and their high debt.

“There had been a general decline in public and private investment in the last few years, leading to a decline in the order book. This dried up their cash flows,” said G Chokkalingam founder and managing director, Equinomics Research & Advisory Services.

Hindustan Construction had a consolidated debt of ~11,150 crore at the end of March 2014, supported by equity of just ~556 crore, translating into a debt-to-equity ratio of 20.

However, slowdown hit firms even with relatively low debts such as Punj Lloyd, which has a debt-to-equity ratio 2.4 in FY14, Simplex Infra (2), Reliance Infra (1), and Era Infra (2.6).

Analysts say the outlook remains challenging, given the economic slowdown owing to the pandemic.