India Road Sector – Contracts Rise- Execution to Catch Pace

Roads – The Most Basic Infrastructure which India Lacks today will be different few years from now. Following lackluster award activity over the past decade and modest improvement seen in FY10, award activity saw significant uptick in April- July 2010, at about 2,800 Kms, averaging 23.5 Kms/day (vs about 3,000 Kms in FY10). Although execution has been slow (averaging 4.9 Kms/day over the same period), we believe it will pick up substantially in the post monsoon season given current low bottlenecks on financing and construction.

Driven by regulatory and policy changes for the roads segment over the last year, the attractiveness of road contracts has increased resulting in heightened competition. In recent months, there have been multiple projects, for which more than 25 companies have qualified for the RFP stage. We expect competition at the bidding level to remain high as the profitability level of road contracts continues to attract companies and financiers.

Analysts on the street expect a strong pipeline of orders to develop in the roads sector as the government targets to award about 18,000 Kms worth US$32 bn over FY11 and FY12.

IRB Infra and IL&FS Transportation Network are the Sought After stocks of Goldman Sachs. Other stocks in this category are – IVRCL Infra, Reliance Infra, L&T, Punj LLoyd, JP Associates, and GMR Infra.