Collapse of project completions

by Mahesh Vyas

A nationwide lockdown is not the best of times to launch new capacities into the market. Even if a project that could have been in the making for a long time has finally reached the stage of commissioning, in times such as these its commissioning is ideally postponed for some time till there are at least some signs of a return to normalcy. The quarter ended June 2020 was therefore, the worst of times to see commissioning of investment projects that sought to expand capacity.

And so, not surprisingly, completion of projects fell to Rs.145 billion in the quarter ended June 2020. This is a precipitous fall. It is almost a tenth of the average Rs.1.3 trillion worth of projects that were commissioned in the preceding four quarters. A year earlier, commissioning was even higher at around Rs.1.6 trillion per quarter.

A large number of projects that were scheduled to be commissioned during this quarter seem to have been postponed. Large scale postponement of commissioning began from the quarter of March 2020 itself. Projects worth Rs.4 trillion were scheduled to be completed in the quarter of March 2020. However, projects worth only Rs.1.6 trillion were commissioned during that quarter. The rest seem to have been deferred into the future.

Fiscal 2019-20 ended with projects worth Rs.5 trillion being completed. This is very substantially lower than the Rs.6.5 trillion worth of investments that were completed in 2018-19.

The slowdown in the economy was a possible reason for entrepreneurs and managers choosing to go slow on implementation. Now, the lasting impact of the lockdown would cast its shadow on commissioning of investments for some time to come.

The composition of projects that were completed during the quarter ended June 2020 indicates the inclination of private enterprise to postpone commissioning of projects.

Manufacturing projects that usually account for about a quarter of completed projects had a mere 2.8 per cent share in completions in the first quarter of 2020-21.

Government projects, particularly those in the mining sectors dominated project completions during the quarter. Government-owned projects accounted for 66 per cent, by value, of all completed projects. Of these, half the completions were accounted for by three mining projects which in turn accounted for 37.4 per cent of the total value of all projects commissioned during the quarter.

Most projects completed during the quarter were in the infrastructure sectors. Mining, construction, transport services and electricity accounted for 86.3 per cent of all completions. Manufacturing accounted for only 2.8 per cent. This makes sense. Entrepreneurs would rather postpone commissioning their manufacturing projects under the given circumstances because their viability depends upon a thriving market. The demand for infrastructure however, is far more inflexible.

The top two mining projects commissioned during the quarter were ONGC’s Rs.28 billion Neelam Re-development project that sought to drill 14 new wells and 13 sidetrack wells besides creating other facilities; and NLC’s Rs.24 billion Talabira 2 and 3 coal blocks project. A third mining project completed was South Eastern Coalfield’s Rs.1.6 billion Bijari Open Cast coal project. Output of such projects do not face a demand problem in during a lockdown.

Construction and real estate projects accounted for 20.5 per cent of all completions by value. 36 projects involving a total investment of Rs.29.5 billion were completed in this industry.

Transport infrastructure projects, principally roads account for another 15 per cent of all projects completed in the quarter. 20 road projects worth Rs.20 billion were commissioned during the quarter. The largest among these were the Rs.8 billion 80 kilometre road project in Pittorgarh in Uttarakhand by National Highways & Infrastructure Development Corpn along with Border Roads Organisation. Most of the other roads projects commissioned in the quarter were in Tamil Nadu and other southern states.

Miscellaneous services, which includes mostly infrastructure projects accounted for over 9.1 per cent of all completions. This includes six hospital projects. These were in Udaipur (Rajasthan), Margao (Goa), Vijayawada (Andhra Pradesh), Mysore (Karnataka) and two in Bangalore (Karnataka). These involved an investment of Rs.4.25 billion. Twelve schools were commissioned in Tamil Nadu and one each in Hyderabad and Koderma but the cost of most of these were not available. It also includes five projects to supply water and to provide sewerage systems.

We expect a sharp fall in completion of investment projects in 2020-21. The first quarter was a washout because of the lockdown. The second quarter continues to function in the midst of a lockdown in most parts of the country. Any increase in demand from rural India because of a healthy increase in kharif sowing and because of government spending on MGNREGA or under the Garib Kalyan Rozgar Yojana can only help in improving utilisation of existing capacities. These are unlikely to spur new investments as their impact on demand is episodic and therefore demand growth is still fragile.

Fiscal 2020-21 is expected to end with completions of the order of Rs.3.6 trillion. Most of these would be in the infrastructure sectors. Completion of manufacturing projects is likely to be of the order of Rs.0.8 trillion against Rs.1.36 trillion completed in 2019-20.

Building good quality infrastructure through government spending could be a useful counter-cyclical approach to the arrest the falling investment cycle as private sector manufacturing projects are unlikely to start or commission projects anytime soon.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.7 +1.1
Consumer Sentiments Index
Base September-December 2015
44.9 0.0
Consumer Expectations Index
Base September-December 2015
47.2 0.0
Current Economic Conditions Index
Base September-December 2015
41.2 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.17 5.24 3.49 0.59
Completed projects 0.84 1.65 1.71 0.19
Stalled projects 0.41 0.61 0.77 0.11
Revived projects 0.43 0.83 0.42 0.55
Implementation stalled projects 0.90 0.15 9.54 0.07
Updated on: 03 Aug 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.7 -23.8
 Expenses -3.1 -2.2 -1.7 -25.6
 Net profit -1.3 -10.7 -43.9 -14.4
 PAT margin (%) 5.3 5.1 2.6 9.0
 Count of Cos. 4,447 4,418 3,911 475
Non-financial Companies
 Income -6.3 -5.5 -8.8 -34.4
 Expenses -6.7 -6.4 -4.8 -36.0
 Net profit -13.5 -13.6 -45.5 -32.7
 PAT margin (%) 5.8 5.7 3.6 8.9
 Net fixed assets 10.4 13.1
 Current assets 5.0 3.1
 Current liabilities 5.0 4.6
 Borrowings 8.4 14.6
 Reserves & surplus 5.9 2.3
 Count of Cos. 3,337 3,309 2,991 372
Numbers are net of P&E
Updated on: 03 Aug 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.2 5.2
 Expenses 9.8 13.4 2.7
 Net profit -39.9 21.0 38.6
 PAT margin (%) 2.0 2.4 7.6
 Assets 10.9 9.3 10.2
 Net worth 7.5 8.5 9.4
 RONW (%) 3.5 4.4 9.0
 Count of Cos. 26,524 25,174 1,087
Non-financial Companies
 Income 8.6 13.6 0.9
 Expenses 8.7 13.8 -0.4
 Net profit -8.5 23.7 6.4
 PAT margin (%) 2.8 3.2 10.2
 Net fixed assets 7.1 5.0 23.4
 Net worth 6.1 8.4 6.5
 RONW (%) 5.7 7.0 14.1
 Debt / Equity (times) 1.0 1.0 0.6
 Interest cover (times) 2.1 2.4 5.0
 Net working capital cycle (days) 77 70 26
 Count of Cos. 21,646 20,492 792
Numbers are net of P&E
Updated on: 28 Jul 2020 9:46PM