Transportation share price target

The Road Transport Ministry has notified an increase in truck axle load by 1025% across various categories. However, clarification is awaited on whether this will be applied on a retrospective basis or prospective basis. Our interactions with industry experts have resulted in two scenarios: 1) Assuming the measure is enforced retrospectively, the higher axle load would lead to an increase in system capacity and lower demand for new trucks. Capacity would increase for large fleet operators on long-haul routes (carrying general cargo/bulk commodities) and 2) If it is implemented prospectively, there can be a marginally positive impact on short-term volume, due to pick-up in...

Top Picks: Ashoka Buildcon, PNC Infra, JKIL & JMC Projects Record ordering in 4QFY18, focus to shift towards execution: NHAI increased the awarding pace in 4QFY18 post a muted 9MFY18 taking aggregate awards to ~7,400km. With EPC players order backlogs swelling, we expect focus to shift towards execution. NHAI is targeting another ~7,000-8,000km of awards for FY19E with Rs 1.2tn of combined value, order visibility is strong. Besides road, vertical, Buildings segment outlook remains buoyant led by institutional, government and retail/hospitality led spending.

As the opportunities landscape remains huge, we remain constructive and believe that the current generation Infra players have learnt from past cycles. New models (HAM) introduced by NHAI have reduced systemic risks. Over the last 3m, CNX Infra has underperformed Nifty by 539bps, despite (1) All time high ordering by NHAI in FY18E, (2) Book/bill for our coverage universe rising ~50% since FY15 to ~4x, (3) Stronger balance sheets with aggregate net d/e at a decadal low of 0.37x, and (4) Strong near term bid visibility in the system. The 1-yr forward P/E at 13.5x is still lower than the last cycle median and peak of 20/25x.

Top Picks: Ashoka Buildcon, JKIL, Ahluwalia & IRB Infra. Muted 9MFY18 ordering, expect recovery in 4QFY18: NHAI ordering has been muted on account of (1) GST related taxation issues (2) TOT monetization efforts & (3) NHAI sorting out land acquisition issues. We expect NHAI to award about Rs 500bn of projects covering 4,500km by FY18E end. The 9MFY18 awards has been sub ~1,300km. Going into election year (FY19-20E), we expect sharp ordering recovery.

Top Picks: Dilip Buildcon, PNC Infra, Sadbhav, Ahluwalia & JKIL. Muted order inflows for infra companies: NHAI ordering activity has slowed down significantly on back of (1) 80% land acquisition norms (2) GST issues & (3) Management efforts in monetizing projects under TOT. We expect bidding to pick up from Nov-17E, lead by HAM projects. Out of the total 44 HAM projects award about 29 have achieved financial closure. NHAI has re-iterated its guidance of achieving 6,500km of awards during FY18E.

Top Picks: Post correction we like Ahluwalia Contract and IRB Infrastructure as play on Indian buildings and Road recovery. Amongst mixed infra plays we like Ashoka Buildcon and Sadbhav Engineering as our top picks. Robust ~15,000km awards by NHAI/MORTH during FY17 coupled with various Metro projects has led to our coverage universe order book multiplying 2-2.5x over last few quarters. Despite inflows, execution is yet to pickup as land acquisition is delaying issuance of Appointed Date.

Baltic Dry Index (BDI), which covers four different sizes of bulk cargo ships on 23 shipping routes throughout the world recovered for a fifth consecutive month touching a 21-month high of 1071 levels. BDI continues to show its seasonal pattern, which reaches its peak of the year in October-December and its low in January-February Furthermore, Chinese Purchasing Managers' Index (PMI), came in at 51.7 in November (highest vs. 53.3 in April 2012), reflecting continuous improvement in manufacturing activities in China. This...

Baltic Dry Index (BDI) is useful in determining the cost to move materials/hard commodities by sea continuing its mild recovery for a fourth consecutive month touching a 15-month high of 860 levels. China that continues to command 70% of the world's seaborne trade has increased its iron ore imports, which could have led to an uptrend in BDI rates. Consolidation within the shipping industry (through bankruptcy/merger) and seasonality typically results in strengthening of BDI over October-December. Average BDI for October grew 5% MoM...

Baltic Dry Index continues to recover for a third consecutive quarter to a yearly high of ~825 levels. The improvement in BDI could be attributed to both consolidation within the shipping industry (through bankruptcy/merger) and seasonality attributed to BDI, which typically sees a relative increase heading into October-December period. For H2FY17, BDI is expected to be on a much better footing compared to beginning of the year when it tumbled to an all-time low of 290 points. Average BDI for September grew 22% MoM (down 7% YoY) to 825....

As of August 2016, IR had Rs 4,366bn (US$ 65bn) of pending projects, announced and/or awarded, but pending completion; 83% of these are construction related (new lines, doublingandgaugeconversion)whiletherestareroadsafety,signalling&telecom;,andIR's investmentsintoitsproductionworkshopsandmetroprojects. Constructionrelatedprojects:61%unbankable,48%WIPfor>5yearsduetonewlines InFY15,IRreduceditsthresholdrateofreturnto12%from14%earlier;despitethat,61%of its pending construction projects remain unbankable. Key reason for this is the slow...