Infrastructure cos' order book under huge strain: Vinayak Chatterjee

In an interview with ET Now, Vinayak Chatterjee, Chairman, Feedback Infrastructure, gives his views on infrastructure financing and order book. Excerpts:


ET Now: How do you see things panning out in the near term? How much stress are you observing on the balance sheets of some infrastructure companies?

Vinayak Chatterjee: There are actually three reasons. One is that because of a slowdown of fresh orders, most infrastructure companies have either flat order books or negative order books in a sense that they are eating out of their existing order books faster than they are adding to it. So order book is under huge strain.

Secondly cash cycle is under strain because with the diminishing of the order book, fresh orders are not coming in and normally fresh orders also come with advances in cash and other receivables. Therefore, the following from the order book, the cash cycle is under strain, one, because new orders are not coming in and two because the banks have become very cautious in further lending.

Thirdly, because the cash flow also comes in when you reach various milestones in project completion, but with project execution getting delayed for various reasons, even cash from existing order book is slower. So, on all accounts, cash flows have been badly hit. Chaps have hit their ceilings on the amount of finances they can get from the banks and the debt burden is huge.

The last point, the first point was stress on order book, the second point was stress on cash flows, the third point is stress on profitability because what is happening with a combination of the first two as well as rise in commodity prices and delays in execution and interest rate and inflation, the profit and loss or the profit expectation from the execution of different projects has also slipped pretty badly. So, the combination of these three reasons has in a sense led to what you would call the stress on the balance sheets of practically every infrastructure company. I do not see any infrastructure company that has been spared from this what I would call the triple whammy.

ET Now: What’s your observation because the road projects are looking promising but power sector remains to be an issue as far as fuel linkages are concerned and other issues, what’s your outlook?

Vinayak Chatterjee: The power sector is currently under very serious stress. The mood is gloomy. Nobody is clear about what the short and medium-term outlook is, though everybody feels in India everything is okay in the long term. All the factors that you mentioned, in the power sector, the power producing engine, which is just a black box, it is a generating plant but its backward linkage is towards fuel supplies and its forward linkage is towards PPAs and in terms of new generation, it is to do with issues like clearances of land, environment, forest, water, etc. Across all these parameters, we are not seeing any light at the end of the tunnel. So to give a straight answer to your question, the situation is quite gloomy.