Construction sector to be less affected in market mayhem

MUMBAI: The construction sector in India is seen relatively less affected by the turmoil in the global markets. The incremental orders bagged by companies have continued to be healthy for companies like Simplex Infrastructures, Nagarjuna Construction and IVRCL Infrastructure, while those dependent on hydropower and road construction like HCC and Patel Engineering have not seen a robust increase in order book position, points out a study report by SBI Cap Securities.

Typically, much of the construction works take place in the third and fourth quarters, while the first and second quarters tend to be lean for seasonal factors.

Said Prakash Rao, analyst ��� SBI Cap Securities, ���the revenue growth will be maintained in Q2FY09E, while the operating margins and PAT are likely to marginally decline due to the increase in prices of raw materials like steel, cement and bitumen and hike in interest rates on borrowings (especially for working capital purposes).���

Moreover, the increasing wages due a shortage of skilled manpower will also contribute to the marginal decline.

Under the current scenario, SBI Cap prefers construction companies that are not highly leveraged (thereby avoiding higher interest payments in an increasing interest rate scenario), have less exposure to Build Operate and Transfer projects (where increase in raw materials cannot be passed on) and fixed price contracts.

SBI Cap top picks are Simplex Infrastructures and Patel Engineering.