L&T on Thursday said that they have orders worth about Rs 15,000 crore, which are slow moving due to various hurdles. Reports had suggested the company could write-off some of these orders.
Chatterjee said two forces were expected to contribute positively for the sector – the cabinet committee on investment's attempt to clear huge amount of stuck projects, and a spike in public sector investments.
The government was encouraging public sector units to invest, thus the market had expected an upturn in project activity in Q4, he said, adding that while many of these measures were good, they have not been able to achieve desired results.
He said the companies are now pinning their hope on the new government, which is likely to assume office by mid-June.
Below is the interview of Vinayak Chatterjee, Chairman of Feedback Infrastructure with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: There is a belief that the market may have got ahead of itself in some of these capital goods infrastructure stocks, do you think the statement from Larsen and Toubro (L&T) yesterday was a bit of reality check in terms of what is happening on ground. L&T is saying that they may write off orders worth Rs 15,000 crore and some of the orders are slowing moving now?
A: It is certainly a reality check because from industry side we have been saying for quite some time now that we haven't yet seen an upturn in infrastructure and related project activity. If you step back a little, you will recall that two forces were expected to contribute positively – (1) was the cabinet committee on investment/PMG clearances which at their level had cleared Rs 4 lakh crore to Rs 5 lakh crore worth of stuck projects and 325 of them. These has enthused the market feeling that there would be a kind of an immediate upswing in project activity. The other force that was expected was a spike in public sector investments – with the announcements of two major ports with dedicated freight corridors and Delhi Mumbai Industrial Corridor (DMIC), nuclear plant, various public sector investments, the PMO and the Prime Minister were pushing and encouraging the public sector undertaking (PSU) chiefs from about a year-and-a-half back both the finance minister, the Prime Minister were pushing public sector units to invest the surplus cash lying with them.
So the market has expected that the combination of both of these would see an upturn project activity in Q4 or soon after Diwali even towards the latter end of Q3. Unfortunately while many of these measures were good, for example I value the hard work done by the cabinet committee on investments in pushing out a lot of stuck projects whether they were fuel supply agreement related or whether they were defense clearance related to the exploration licences etc, but the reality check on the ground which you rightly said comes out of the L&T statement as a leading indicator is that somewhere along the pipe these so-called positive pushes or impetus have not yet resulted in the rubber hitting the road and from most of my business colleagues in the capital goods industry – anecdotally I have learned that they have not seen any uptick in their order book situation or even projects on the ground have not got around galvanizing themselves in terms of recommencing project activities, nor has the banking seen decreasing trend in corporate debt restructuring schemes (CDRs) or repayment of stuck or debts or stressed assets.
So, to summarise yes, the L&T statement is a reality check and now I suppose the light at the end of the tunnel and getting brighter everyday for market watchers. The fact that a new government maybe in place by mid-June seems to be the big hope right now.
Ekta: I am reading a report which is written by one of the top brokerages and they have quoted Mr. Anil Swarup, who is the chairman of the Prime Minster's project monitoring group, where Mr. Swarup's team has cleared about 140 projects amounting to USD 85 billion over the past seven months and according to them what lacks at this point in time is just execution. Once the new government comes on board, whoever that might be, the policies have already possibly been put into place but execution would be the key challenge going forward and might be the only challenge going forward for the new government. Would you agree with that?
A: That is certainly a positive thought and I have no reason to disagree. It is indeed true that Mr. Swarup and his team have worked too hard to push out huge number of stuck projects but the dilemma in the minds of the private sector as well as the capital goods industry is what is taking so long for this period from policy clearances or logjam clearances to projects raving up. We have not expected this pipeline to be this long.
People are expected within one or two months - projects would start revving up and order would start getting in place. So, the question to ask ourselves is that why is that not happening. Is it because there are many more permissions required at the state level, is it because the balance sheets of the project entities are stressed, are people holding back capital investments because of lack of confidence right now. We do not know and I wish somebody would do a deeper investigation; in fact it would be nice if the cabinet committee on investments and Mr. Swarup's group itself came up with certain answers by doing a dipstick among the projects they have cleared to say how many of them have started project activity and how many are still languishing for reasons which maybe beyond their control.
Anuj: Did you find it ridiculous that Railways told Coal India that it does not have wagons for coal supply and the way some of the issues are being handled for power projects. Your reaction to that statement that came from Railways yesterday.
A: I was extremely disappointed when I read the report yesterday and I tweeted about it also saying that railways in a sense shows the arrogance of a monopoly to just tell Coal India that coal supplies to 53,000 Mega Watt worth of captive thermal projects, they do not have wagons to supply that, seems to me a completely unacceptable statement from India's leading transporter of goods. A more positive statement would be to say we are scrambling to see how we can meet your demand. We may have some temporary shortcomings, but this is completely unacceptable.
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