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Construction : Desk | December 2015 | Source : CW-India

Let´s Get Parliamentary

When, a couple of years ago, CW raised the question of whether India could be considered a construction equipment hub, many scoffed at the idea as our delivery on manufacturing was not considered competitive. Over the years, the logic morphed from addressing the needs of neighbouring countries to developing models specific to the needs of Indian terrain and then exporting such models to other countries requiring them. At this year´s EXCON, which just concluded in Bengaluru, the fact that India has established itself as a sourcing hub was very clear. This is an essential pillar of the ´Make in India´ campaign within the construction segment. With a current size of $2.8 billion, the Indian construction equipment industry is expected to grow to $5 billion by 2019-20. Even the after-sales spares market is about $800 million.

The roads sector has clearly been prime among the islands of solace, closely followed by contract mining, irrigation and power. Minister for Roads Nitin Gadkari has proven to be a dependable ally for the construction sector owing to his dogged determination in resolving issues afflicting progress.

He, along with his team, has initiated several measures to counter reticence, paving the way for resurgence in orders for the sector. However, as Robert Frost said, ¨The woods are lovely, dark and deep. But I have promises to keep, and miles to go before I sleep.¨ The finances are showing no indication of improvement.

Aggregate sales, operating profit and net profit of over 300 companies from core sectors fell in the September 2015 quarter, making it the third consecutive quarter of a dismal performance. Half the operating profit was spent on servicing debt indicating pressured balance sheets. The performance of core sectors (including capital goods, cement, construction, metals, mining, and power) is indicating that the decline has not been arrested conclusively and a turnaround in the economy may take longer than expected. The performance of core sector companies in the September quarter has seen net sales fall year-on-year by 5.5 per cent while net profit has dropped by 7.1 per cent. Operating profit skidded 12.6 per cent, which was steeper than the drop in sales, reflecting pressure on margins. If a comprehensive view of the entire sample of over 1,800 companies across sectors excluding banking, finance, oil and gas is taken, we find a modest improvement in net sales by 1.5 per cent and net profit by 1.6 per cent while operating profit slipped by 2.3 per cent. Companies are weighed down under a $640-billion debt burden, which is more than 30 per cent of India´s GDP. The strain lies in the stressed debt of over $50 billion in the banks and a rise in bond defaults. Gammon India is the sixth company where bankers have decided to take majority control by converting debt into equity. Previously, lenders to Electrosteel Steels Ltd, Lanco Teesta Hydro Power Pvt Ltd, VISA Steel Ltd, Jyoti Structures Ltd and Monnet Ispat and Energy Ltd have invoked conversion of debt into equity giving them majority control. Gammon´s T&D and EPC businesses have already been scheduled to change hands by incorporating them into separate SPVs.

Government spending will need to continue to accelerate the momentum in the economy. The passing of GST would also greatly help. Politically, an atmosphere of cooperation is needed; this appears to be emerging as the ruling party seems to have decided to work with the opposition than have a standoff. Enough un-parliamentary communication across the country - Parliament at work will augur well for closing the year on a positive note.

 
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