The infrastructure of infrastructure sector companies in the country has been shaken. The recent peak of GVK Power & Infrastructure is the latest example of how infrastructure companies have been steadily shrinking since 2014. Sight the pulse of 10 companies in the infrastructure sector as compared to FY14, six of them have gone bankrupt or are struggling to make their existence. The market capitalization and revenue and profits of these companies are declining rapidly.
In the last six years, the market capitalization of these companies has reduced by 70 percent and during this period the market capitalization of at least four companies has decreased by more than 90 percent. Only three of these 10 companies - Larsen & Toubro, NCC, and GMR Infra - have grown in market capitalization during this period.
The market capitalization of GVK Power & Infrastructure has come down by 70 percent since March 2014, although consolidated revenue has grown by more than 60 percent during the same period. It returned to profit in FY 2018 after suffering losses for five consecutive years. The company has now agreed to sell its airport operations business to Adani Group. The GVCO group was receiving up to 90 percent of revenue from the airport operations business.
Similarly, in 2014, 12 out of 20 infrastructure companies are going through a financial crisis and their market capitalization has fallen by more than 70 percent during the last six years. During the same period, the market capitalization of these 8 companies has decreased by more than 90 percent. Excluding L&T, the revenue and profits of most of the construction and infrastructure companies continue to decline. For example, JP Associates' net sales in FY2020 decreased to half in FY14. Last year, Punj Lloyd slipped by around 60 percent before joining the insolvency process. Gammon India and IVRCL have been in a similar situation. The revenue of IL&FS Engineering and IRA Infra declined by 70 percent between FY14 and 2019. All these companies are currently going through the insolvency resolution process. Consolidated net sales of the relatively outperforming GMR Infra have also fallen 20 percent since FY14. It has recorded a net loss for over six years.
The analysis is based on the top 20 construction and infrastructure sector companies in terms of revenue for FY14.
Barring the two most valuable companies in the infrastructure sector, L&T and GMR Infra, the market capitalization of 8 other companies has slipped 84 percent in the last six years.
These figures directly indicate the financial problems of companies in this sector in the country. With its current market capitalization of Rs 1.32 lakh crore, L&T is 4 times larger than the combined market capitalization of 19 companies in the sector. Analysts blame the lack of investment in the economy and the high debt burden on these companies for the deteriorating condition of construction and infrastructure companies.
G Chokalingam, founder and managing director of Equinomics Research and Advisory Services, says, "Public and private investment has fallen drastically in the last few years, which has led to the bookkeeping of companies." They have stopped getting cash due to which they are getting entangled in the debt trap.
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