Revenues of engineering, capital goods firms to be up 15-17% this fiscal: Crisil

Revenues of engineering, capital goods firms to be up 15-17% this fiscal: Crisil

NEW DELHI : In a reflection of a growing uptick in the Indian economy, the revenues of engineering and capital goods firms is expected to go up by 15-17% this financial year, said Crisil Ratings.

“Healthy order book, improved profitability to support credit profiles, government thrust on infrastructure, including through higher budgetary allocation, and economic recovery will lift the revenues of the engineering and capital goods companies by 15-17% this fiscal, more than making up for a 3% contraction last fiscal," Crisil Ratings said in a statement.

This comes against the backdrop of the government lining up a large infrastructure capital expenditure plan. Also, Prime Minister Narendra Modi on 15 August announced India’s ambitious plan to launch ₹100 trillion PM Gati Shakti scheme for an integrated infrastructure growth to make the economy competitive.

“The order book of engineering and capital goods companies remains healthy at ~ ₹2.3 trillion (1.7 times of FY21 revenue). Orders from sectors such as industrials, infrastructure, railways, construction and mining equipment are rising, while those from the power and heavy electrical sectors remain sluggish. Net-net, a pick-up in execution after the second wave should support revenue growth this fiscal," Anuj Sethi, senior director, Crisil Ratings said in the statement.

The PM Gati Shakti scheme is aimed at breaking the silos between road, rail, air and waterways to reduce travel time, improve industrial productivity, make manufacturing globally competitive, facilitate setting up future economic zones and create employment opportunities.

“While working capital requirements will increase, higher cash generation and prudent capital expenditure (capex) will keep credit profiles ‘stable’, a Crisil Ratings analysis of 42 companies, with aggregate revenue of ₹1.30 trillion and accounting for about 55% of the sector’s revenue, shows," the statement said.

India has been working for a reset of its logistics sector involving railways, highways, inland waterways and airports to put in place an effective transportation grid. This comes against the backdrop of logistics comprising about 13% of total costs for Indian companies, making exports uncompetitive vis-a-vis China.

“Also, a 26% increase in budgetary allocation for infrastructure this fiscal bodes well for order flows," the statement added.

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Pvt airport operators expected to spend ₹ 42,000cr on capacity expansion: Crisil

MUMBAI : Private airport operators are expected to spend around ₹42,000 crore on capacity expansion over the five years through fiscal 2026 as they are confident of air traffic growth in the long term, Crisil Ratings said on Tuesday.

The amount will be more than double the capital expenditure (capex) they incurred in the previous five financial years, it said.

According to Crisil, the confidence on capex stems from the strong long-term fundamentals and regulated tariff structure, which allows pass through of capex costs and thereby keeping the risks low.

Prior to the pandemic hitting the country in early 2020, private airports were bursting at their seams, operating at over 115% of their design capacity. It was around 175 million passengers on a design capacity of about 150 million passengers, as per the ratings agency.

The high operating rate was due to strong annual growth of over 8% in air traffic between fiscals 2016 and 2020, Crisil said, adding the operating rates took a massive hit in fiscal 2021 as the pandemic and the subsequent economic slowdown led to traffic nose-diving by around 65%.

Though the current fiscal also started with a more virulent second COVID wave, prospects of economic recovery look brighter with the infection rate easing, vaccinations gathering pace, and the government continuing its thrust on infrastructure development, it said.

In its note, the rating agency also said that economic growth outlook remains strong and GDP is expected to grow at around 7.4% CAGR over the next four years – fiscal 2022 to fiscal 2025 – in real terms.

“Economic growth will boost air traffic volumes given the impact on increase in per capita consumption and shift in preference towards an efficient mode of commute.

“Given that air traffic in India tends to grow faster than the GDP growth and the government’s push to connect lower tier cities with metros under its regional connectivity scheme, we expect a robust 8.5% annual air traffic growth at Indian airports till fiscal 2026 (compared to fiscal 2020 levels),” Ankit Hakhu, Director at Crisil Ratings, said.

This would mean an additional around 190 million passengers will fly pan India by fiscal 2026 over the pre-pandemic base of fiscal 2020 of 340 million passengers, taking the overall traffic to around 530 million passengers by fiscal 2026, as per the note.

Out of the total, 70 per cent or around 375 million passengers are expected to be handled by private airports in fiscal 2026, up from around 50 per cent in fiscal 2020.

This expected demand growth is driving private airport operators to enhance the design capacity to 340 million passengers per annum from the pre-pandemic level of around 150 million, Crisil said. Despite this significant capacity expansion, strong increase in demand could keep utilisation rates of these airports around 100% by fiscal 2026.

“While the high utilisation rate justifies the large capex, credit profiles of these airports will also be supported by their regulatory business model.

“Tariffs for these airports are based on a fixed regulated return (weighted average of around 16% on the equity investment and the market cost of debt) on capex in the next five years, which provides certainty regarding cash-flow return on the capex,” Varun Marwaha, Associate Director at Crisil Ratings, said.

Stating that airports also earn from non-aero activities, Crisil said that by fiscal 2024, increase in passenger traffic and economic revival should help this revenue stream rebound by 50% (in absolute terms over fiscal 2020) and contribute over 40% to the overall revenue of private airports.

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