>INDIAN CONSTRUCTION SECTOR (ANAND RATHI)

■ Scale change ahead. We estimate our construction coverage universe (excl. JPA) to report 32% earnings CAGR over FY09-12, driven by India’s huge infra spend, better credit availability and leaner balance sheets. The massive infra spend is likely to lead to a scale change in order inflows over the next 12-18 months.

■ Infra spend – Sustained impetus. India’s infra spend will rise from 6.5% of GDP in FY09 to 9.3% by FY12. Almost half the investments would be in power and roads – construction orders for over 100 GW (Rs1.1trn) and 36,000km (Rs2.6trn) over the next 24-30 months. Over the next 15 months, we expect orders worth Rs0.5trn and Rs1.6trn from power and roads, respectively.

Order, order, order! Time for a scale change

■ Strong earnings growth. We expect our coverage stocks (excl. JPA) to record earnings CAGR of 32% over FY09-12 on the back of stable operating margins and strong revenue growth. Despite a higher base (40% CAGR over FY06-09), we expect revenue to grow at 25% CAGR over FY09-12e.

■ Leaner balance sheets. Stronger balance sheets (led by availability of equity capital) are enabling construction companies to bid for larger orders and for more of them. Focus on core competency is reducing risk perception.

■ Top picks: JP Associates, Nagarjuna. We initiate coverage on JP Associates, NCC, Era Infra, IVRCL, HCC and Simplex with Buy ratings.

To read the full report: CONSTRUCTION SECTOR