Planning commission cut India’s XI plan (FY08-12) core Infra capex (ex-Telecom) by 5% led by slippages at Railways, port and roads, while maintaining overall doubling of capex to Rs20.5tr, in a mid-term review. This reinforced our view of a 10 year extended cycle for E&C companies apart from allaying the fear of slowdown in their earnings on a higher base (8th year of this cycle). Govt. reiterated XII plan (FY13-17E) Infra capex of Rs40tr / US$880bn, taking total (FY08-17E) to Rs60tr / US$1.3tr. This creates a macro framework for robust sustainable growth & has potential to drive E&C cos into a higher orbit of size & value.
PM said that India must operationalise open access for bulk power consumers (>1MW). If this move is allowed by FY12E at a reasonable cross-subsidy charge, it could create significant revenue loss to state discoms and could pave way for discom’s eventual privatization on higher losses, which has been long over-due.
FM said that the private developers will be allowed to issue long-term infra bonds carrying tax benefits introduced in the Budget FY11. Aviation minister said India to build 12 new green-field airports on PPP & offer PPP in airport upgrades.
Power to help achieve targets. Govt. targets capex at US$143bn – 2x. Despite past under-achievements, we think target may be met on spends for XII plan started (45 of 100GW ordered with 2 year to go) and up-tick in private spends.
Ports disappointed with halving of spends (Rs406bn v/s 880bn) v/s original plan, led by miss by public sector.
Road spends – too bullish. Given the past slowdown in ordering, we estimate that the target of US$61bn spend (14%) in XI plan could be missed by 15-20%.