INFRASTRUCTURE & CONSTRUCTION SECTOR

• Infrastructure
• Construction – Civil & Electro Mechanical (MEP)
• Construction – Mechanical
• EPC/Turnkey Projects
• Design/Engineering
• Real Estate
• Energy

Global Industry Scenario: Globally, the growth of infrastructure, construction and allied industries like building materials and machinery drive investment, employment, and economic growth; and reflect the globalization of business. The sights of construction equipment and upcoming project structures mirror the level of economic activities. Emerging nations especially are rapidly building large scale infrastructure (transportation network – roads, bridges, flyovers, ports, airports, power plants) and developing urban infrastructure (like housing, water supply, sanitation, education, and healthcare). With growing urbanisation, new buildings are being constructed in emerging markets, besides the redevelopment/ refurbishing of existing residential towers, office complexes, educational institutions, hotels and hospitals. Thus, this sector is beaming with activity.

Indian Scenario: In India, the construction sector is the 2^nd largest employer. Sizeable gap exists between the need and the availability of infrastructure. India, being among the fastest growing economies, understands the significance of investment in infrastructure in sustaining GDP growth and employment creation due to its multiplier effect and linkage-chain of the construction sector with many other industries. With various initiaves by Indian govt and increased investments on infrastrcutre in the past couple of decades, the construction industry has boomed, and its share in GDP has risen from ~5.7% of GDP to ~8.0% during 2007-12; and some  landmark infrastrcutre projects (e.g. Bandra-Worli Sealink, Mumbai-Metro, Monorail) have got completed lately. The growing demand for housing has transformed the real estate industry.

But, post the world economic crisis, infrastrcuture growth in India has slowed down during 2008-13, with the slackening GDP growth and factors like coal/fuel linkage and enviornmental clearance issues affecting many power and road projects. Companies in the construction sector have also faced issues like leveraged balance sheets, slowing orders,  competition from global players, rising input & finance cost, and shrinking profitability. Real estate demand has slackened with the RBI tighteting liquididy and raising interest rates to control inflation. However, now with the new government’s renewed focus and fresh initiatives (e.g. clearance of stuck projects, reforms in coal and power sectors, new investments, relaxation of FDI in construction, tax sops on housing loans), the infrastructure and construction sector is set to resume growth journey, and help GDP growth and employment generation in coming years. The long term prospects for construciton sector are robust due to India’s pressing need for quality infrastructure and urban development. (Read full Industry Research Report on the Infrastructure & Construction sector in India)

KLS&A Advantage: In the infrastrcuture and construction sector, you need an effetive leadership and competent teams that are ever vigilent to outbid competition, win  large orders, execute on schedule, manage risks, drive growth & profitability. We, at KLS&A, are well positioned to help you, as our specialist consultants with their strong industry knowledge and experience, intimately know the intricacies of this sector and are well-trained to attract, spot and engage the finest leadership talent and execution teams for our clients. We have been successfully hiring professionals in these sectors for our distinguished clients who are large Indian business houses and MNC construction majors. Our founder himself  having worked in leadership roles with listed engineering and construction companies,  has deep insights in these businesses alongwith a wide network of contacts. We are pleased to offer our experience, contacts and well-honed search methodology to assist you hire the most suitable human talent and succeed in your mission.

(References: Various media reports, press items, and research reports including from IBEF, and EM, etc.)

[Disclaimer: This general note which has very broad, indicative, and unverified information of the industry sector has been compiled through secondary research from multiple sources; and so, is not meant to be relied on by anyone for any purpose. KLS&A is not responsible for any errors or shortcomings in the same.]

INFRASTRCUTRUE & CONSTRUCTION SECTOR IN INDIA

Sector Overview: A strong infrastructure sector is crucial for the sustained economic growth of any country. India has substantial gap between the need and the availability of infrastructure.  Investment  in infrastrcuture has a multiplier effect with the capacity to generate an income of ~ 5 times, because of the of linkage-chain of the construction sector with many other industries, e.g, cement, steel, concrete, brick, timber, other building material, consruction equipment, machine tools, etc.. The construction sector is the second largest employer. Indian govt in the past couple of decades has taken various initiatives, and increased investments on infrastrcutre. In last decade, some  landmark infrastrcutre projects have been completed (e.g., Worli-Bandra Sealink, Mumbai Metro, Monorail, Airports modernisation). So, the construction industry has been growing rapidly; and its share  as a percentage of GDP has gone up from ~5.7% of GDP to ~ 8.0% during 2007-12. Also, with the rapd increase in demand for the housing and urban development in recent couple of decades, the real estate industry has transformed from single market, single product, purely family organisations, funded mainly by debt, to now large corporates operating in multi-cities with differentiated branded housing prioducts portfolio, funded mostly by private equity, and structured finance instruments.

Challenges and Recent Performance: Though, infrastructure, construction and real estate had boomed in pre-2008 times before the world economic crisis, these have slowed down significantly during recent years 2008-13, with the slackening of overall GDP growth, and various other factors (e.g., many power projects languihing for want of coal/fuel linkage; other large projects stranded awaiting environmetnal/government clearances, as well as due to activism). With the projects slowing down, financial viabilty of projects has been impacted making financing of such projects difficult.  Companies in the infrastructure, construction and real estate sectors have also been facing issues like leveraged balance sheets, slowing new orders,  increasing competition, rising cost of  inputs, labour & finance cost, shrinking profitability, and slackened demand with the RBI tightening liquididy and keeping interest rates high due to high inflation. The residential segment of Indian real estate has been experiencing lower volumes, over supply, and piling inventory in certain locations, and a mixed trend in other locations. The commercial property segment has mostly been subdued due to oversupply; and the retail property segment reflecting a mixed situation.

Government Initiatives/Key Developments: The Govt. has liberalised ECB norms for infrastructure sector; and announced massive infrastructure projects like the Delhi–Mumbai Industrial Corridor. The Cabinet Committee on Investment (CCI) has cleared approval for several large stuck projects totaling to ~ Rs100,000 crore. The government has finalized plans for investment of ~ US$ 13 billion under National Solar Mission II. Several other new projects, including Mumbai Trans-harbour Link, International Airport, Navi Mumbai, are on anvil. The new infrastructure ministry is keen to quicken the pace of road construction to 25km per day (from 10 km). The Union Budget 2014-15 has announced various initiatives to boost infrastructure sector – e.g., higher outlay on infrastructure, REITS for infrastructure; incentives of lower CRR & SLR and allowing banks to issue tax-free infrastructure bonds for encouraging them to lend more to the infrastructure sector; relaxing FDI in construction sector; announcement of massive investment in railways; higher deduction of interest on housing loans to salaried class, etc. These initiatives will give a fillip to the infrastructure, construction and real estate.

Prospects: The long term prospects for construciton sector are robust due to India’s pressing need for quality infrastructure and urban development. The govt.’s plan to double investment to ~US$ 1 trillian on infrastructure in the 12th five-year plan (2012-17); and also the new government’s resolve to speed-up the process of resolving consraining factors (land acquisition, environment, coal linkage, financing) to debottleneck the infrastructure sectors augur well for the construction companies. Residential housing segment too has good long-term future due to the  favourable demographics, rising incomes, liberal home finance, tax sops on home loan, and relaxing FDI in real estate. As India already needs to meet the existing shortage of ~ 19 million houses in the beginning of the 12th Plan period (2012-17) on priority, there are big opportunities for the housing construction sector. Therefore, the future of the Indian infrastructure, construction & realty look very promising.

(References: Various media reports, press items, and research reports including from IBEF, and EM, etc.)

[Disclaimer: This general note which has very broad, indicative, and unverified information of the industry sector has been compiled through secondary research from multiple sources; and so, is not meant to be relied on by anyone for any purpose. KLS&A is not responsible for any errors or shortcomings in the same.]