T&D equipment suppliers likely to be resilient to business disruptions: Ind-Ra
May 25, 2020
Mumbai (Maharashtra) [India], May 25 : India Ratings and Research (Ind-Ra) said on Monday the slowdown in construction and infrastructure activities due to more than 60 days of nationwide lockdown will impact the revenue growth of transmission tower suppliers in the near term.
However, the players engaged in the supply of transmission and distribution (T&D) equipment are expected to be more resilient than the traditional steel industry players.
Orders for customised transmission towers are obtained through tenders from government organisations with a six- to 12-month supply period. The orders are backed by secured funding programmes. Even for export orders, the counterparty is government-backed entities or projects.
Ind-Ra said the government's thrust on infrastructure development to support the economy could result in a faster recovery for transmission tower companies than traditional steel companies. However, there will be a slowdown in order execution in the near term due to delays in construction activities and shortage of labour at construction sites amid the lockdown.
Resultantly, revenues could decline more in FY21 than in FY20. Tower companies are also competitive in export markets, which is visible with the increasing share of export orders from countries in Africa, Latin America and Europe. Orders from economically weak countries are generally backed by funding from the World Bank, thereby securing payments.
Besides, companies have a diversified product portfolio with products ranging from specialised structures for solar power and railways to different grades of fasteners, which also provides support to their top line.
T&D suppliers generally hold an order book of 9 to 12 months in the domestic circuit which extends to 15 to 18 months in export markets. Although the COVID-19 outbreak has led to a slowdown in consumption and delays in order execution, there have been order inflows to these suppliers in April 2020 and the resumption of project sites across India will gradually revive the sector.
During April, Karamtara Engineering won three bids in domestic tenders and thus has strengthened its order book. Since the inventory is customised for every order, the cancellation of orders is a remote possibility while a delay of one or two months has been witnessed across Ind-Ra rated transmission tower companies.
Ind-Ra said it expects working capital cycle to stretch for sector companies owing to the delays in order execution.
However, the regulatory debt moratorium package will significantly ease the liquidity requirements of these entities in the near term. This could increase the liquidity cover by up to 90 days for all Ind-Ra rated issuers and significantly mitigate the risk of sharp rating transitions in its portfolio.
Among the Ind-Ra rated transmission tower companies, Karamtara Engineering has applied for the moratorium to conserve cash amid uncertainty.
While some of the remote project sites have resumed activity, others are still under the lockdown. Any extensive spreading of COVID-19 in the country for a longer period and continued slower-than-expected order execution could lead to deterioration in revenue, liquidity and credit metrics, said Ind-Ra.
