CCI Asks Government To Speed-Up Clearance Of Stranded Infrastructure Projects

If we take a look at the financial performance of engineering and capital goods companies for the June 2013 quarter, one thing emerges clearly and that is the drying order backlogs of the leading infrastructure companies. In the quarter ending June 2013, L&T was the only company that managed to add to its order book. Other including HCC, Punj Lloyd, IVRCL and NCC witnessed a marginal fall in the order book as compared to the quarter ending March 2013.

A scenario like this has been persistent since the past few quarters as not only have the private companies stalled their capex, but also paused were some of the larger public sector projects on account of issues like forest clearance, fuel supply agreements and land acquisition.

The Cabinet Committee on Investment (CCI) has decided to ask the concerned ministries to clear around 36 infrastructure projects which are stuck due to delay in sanctions. The panel has decided that all the pending approvals for 36 core sector projects, including 28 power plants, by the concerned ministries should be given within the next 60 days. This would result in an investment of about Rs 1.9 lakh crore.

Within the next 60 days, ministries will sort out all the remaining issues regarding the power projects, the highway projects and all other infra sector related projects. For example, 18 fuel-supply agreements (FSAs) will be resolved by September 6. We feel it is positive for infrastructure players as many companies are working at lower capacity utilisation. Lower capacity utilisation has been the primary reason behind contraction of margins. If the companies start using their capacities at higher levels, margins would expand automatically.

However we are still sceptical about the FSA and faster clearance of the projects in just 60 days. Further, many projects have become financially unviable. So unless and until both these factors are looked into, real benefits would not emerge. Hence though the news is positive, we would recommend investors to stay away from infrastructure stocks for a while. Moreover, interest rates are still at the higher end and hence many projects may not fly-off soon, despite the clearance. Hence staying away seems to be the right strategy.