New projects dip in March quarter amid economic slowdown, coronavirus

The Coronavirus issue is likely to affect up to two quarters of business.
Fewer new projects were seen in the fiscal year’s last quarter amid an economic slowdown and rising uncertainty around the coronavirus (Covid-19) pandemic.

The value of new projects was Rs 7,000 crore lower in the three-month period ending March 2020, according to data from the Centre for Monitoring Indian Economy (CMIE). 

The value of new projects was Rs 2.98 trillion in March 2019. It dropped to Rs 2.91 trillion in the quarter ended Tuesday (March 31), the last day of the fiscal year (FY20).  

Completed projects were down 71.3 per cent and stalled projects also declined. The value of stalled projects fell more than 82 per cent. 

The June quarter numbers may reflect sentiment fully, with new projects expected to significantly decline amid the corona scare, feel some analysts.

Covid-19, which started in China, has spread to most countries. It is affecting nations like the US, Italy and Spain the most. Owing to the spread, India has also been under lockdown since March 25. This is expected to have a long-term impact on new projects, according to analysts. The lockdown means disruptions in supply chain as well as availability of labour.

The coronavirus issue is likely to affect up to two quarters of business for capital goods companies (as their revenues are dependent on such projects), according to a March 31 report by ICICI Direct, the retail division of brokerage firm ICICI Securities.

“It is difficult to assess real magnitude of the outbreak and oil price crash at the moment as it is yet to reach its peak. However, it is likely to wash out three to six months of revenue and profits in the domestic market while hitting companies dependent on or with exposure to countries in Europe, the US, Middle East and China hard,” said ICICI Direct.

The sector is likely to see a strain on orders and execution. It is set to face challenges on working capital, cash flows, balance sheets and profits for the fiscal year ending March 2021, it added. 

Private sector capital goods major Larsen and Toubro (L&T) has been beaten down to price/book (PB) valuations, last seen during the global financial crisis, noted foreign brokerage firm Jefferies India equity analysts Lavina Quadros and Apoorva Bahadur in their company update report. The report noted some disruption in the forthcoming June quarter.

“L&T is trading at a one-year forward PB valuations below the global financial crisis levels. The order book probably reflects one of the lowest private sector and new capex projects’ contribution since it demerged the cement business in 2003. Our earnings reflect 20-25 days work disruption in 1QFY21E,” it said.

Gross domestic product (GDP), a measure of economic activity, had seen domestic and global headwinds such as weak credit growth and global supply chain disruptions even before the Covid-19 crisis.

Completed projects were down from Rs 2.65 trillion in March 2019 to Rs 0.76 trillion in March 2020. Stalled projects declined from Rs 2.68 trillion to Rs 0.48 trillion in the same period.



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel