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Infrastructure sector outlook

The third quarter FY12 numbers of the infrastructure companies were mixed bag with some of the companies disappointed on execution, margins and net profit front. Execution was likely to increase significantly from Q3FY12/Q4FY12 onwards, however it continued to remain below expectations due to adverse macro-economic scenario of high interest rates and delays in project approvals.Profitability was impacted by poor execution and continued high borrowings and working capital requirements.

Companies like IVRCL,NCC,BGR Energy and J Kumar Infra were impacted by these issues. However, IRB Infra, JP Associates, Unity infra and Pratibha industries outperformed market expectations.

Current order books remained healthy but execution growth was impacted due to very high interest rates or lack of funding to achieve financial closure or environmental clearance related issues. Companies like IRB Infra, JP Associates, Unity Infra and Pratibha industries reported excellent growth which was better than estimates. Operating margins declined for Q3FY12 on yearly basis due to increase in costs as well as change in revenue mix.

However, for the full year FY12 operating margins are expected to come down by 25-
50 bps in comparison with last year due to increased competition as well as
higher raw material prices for fixed price proportion of order book. Going forward
in FY13, one can expect margins to be maintained at similar levels.