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Exhibit 25: IIP vs repo rate
(%)
16
14
12
10
8
6
4
2
0
Source: Reserve Bank of India, MOSPI
Short-term hiccups in order inflow, but long-term growth intact
During FY10-11, concerns over the global macro environment (EU sovereign debt crisis) decelerated the
corporate capex cycle, while domestic factors like corruption-related investigations, high fiscal deficit, state
assembly elections, rising interest rates and environmental clearance issues postponed the infrastructure
investment plans of the government. Infrastructure spending so far has played catch up with the rise in GDP –
going up from around 5% of GDP in 2002 to 8.5% in FY10. GDP growth is now seen slowing by nearly 100
bps to around 7.5% in FY12 from 8.5% in FY11. The impact of slowing growth on construction companies is
already visible, while on the other hand, effective interest rates have gone up by over 350 bps, thereby
impacting the profitability of the sector. This has led to slower growth in incremental order book of
infrastructure companies in the past one year. We believe that in the short term, the pressure on incremental
order inflow will continue.
Jan-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11
IIP
Repo rate
12th Plan (FY12-17) infrastructure target of US$1trn
Exhibit 26: Order inflow trend
Source: Company, Nirmal Bang Institutional Equities Research
Based on initial estimates of the Planning Commission, under the 12th Plan, total investment on infrastructure
is estimated at US$1,000bn. Even if we consider a slippage of 25%, it is still 100% higher investment
opportunity for infrastructure companies over the 11th Plan. Based on our sectoral analysis for expected
investment under the 12th Plan, road and power segments would account for around 45% of total investment,
showing some improvement in order inflow, but these segments are currently facing a lot of problems.
Exhibit 27: 12th Plan infrastructure investment and GDP growth
Year 2012-13 2013-14 2014-15 2015-16 2016-17 12th Plan
GDP at market prices($bn) 1,720.6 1,875.5 2,044.3 2,228.3 2,428.8 10,297.5
Rate of GDP growth (%) 9.0 9.0 9.0 9.0 9.0 9.0
Infrastructure investment as a % of GDP 9.0 9.5 9.9 10.3 10.7 10.0
Infrastructure investment ($bn)@Rs40/$ 154.9 178.2 202.4 229.5 259.9 1,024.8
Source: Planning Commission
(%)
60
50
40
30
20
10
0
Impact of credit crisis
Corruption-related investigations and rise in interest
rates
EU sovereign debt concern
Pick-up in NHAI
orders
Exhibit 28: Segmental investment allocation
(Rsbn)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
Electricity
Roads
&Bridges
Telecom Railways Irrigation Water
supply &
12th Five Year Plan
sanitation
11th Five Year Plan
Others
Source: Planning Commission, Nirmal Bang Institutional Equities Research
Exhibit 29: Infrastructure investment to surge higher
(%) (US$bn)
12
1,200
9.5
9.9
10.3 10.7
10.0
10
9.0
1,000
8.4
8
800
6
600
4
400
2
200
0
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 12th Plan
Infrastructure investment as % of GDP Infrastructure Investment
Source: Nirmal Bang Institutional Equities Research
13 Infrastructure Sector