Anil Yadav, Director of Investor Relations at IRB Infrastructure stated on CNBC-TV18 that while central government activity has slowed, Maharashtra has shown strong ordering activity. He highlighted that a significant portion of road infrastructure capex in the last 3-5 years has been driven by government spending through HAM and EPC projects.
Meanwhile, Rajashree Murkute, Senior Director at CareEdge Ratings, emphasized the importance of capex trends for economic growth, pointing out that Maharashtra led in project completions during H1FY25, with its share of announced projects rising to 35%.
This is the verbatim transcript of the interview.
Q: What was the performance of Maharashtra? Did it do better than other states? Did it do better than its previous record in the last five years when we thought we had a kind of mismatched government?
Vyas: Maharashtra has always been one of the better performers on the capex front. It has a lot of investments in manufacturing, and it competes with states like Tamil Nadu, but Maharashtra has been on top, and it has not lost that position much.
There is competition from Gujarat and Tamil Nadu, but Maharashtra has done well. It continues to do well. It is the top state in terms of attracting investments despite the political upheavals, ups and downs. And by the same measure, one can say, as investments in the country are not doing too well, Maharashtra takes ahead because of that as well.
Q: New proposals, Maharashtra continues to go up with 21% of the share, but in projects completed, it has fallen year-on-year (YoY). FY23 was 21.69 according to CMIE data, falling about 10 percentage points to 13.69. So, was completion hit, you think? Or are these ups and downs common?
Vyas: That is not a big deal. You will see a lot of investments coming through in the first half of FY24-25. So, Maharashtra did very well in FY21-22. It did come down a bit. One cannot expect the graph to keep on rising continuously in these projects because many of them are very clunky projects, they are big projects. So, one should not read too much into the fall in FY23-24. I see a little pickup in FY24-25.
Q: Was there any delays in completion because it took time; the government was preoccupied with other things, or perhaps did not have such a stable majority? Did you have any slowdown in decision-making in the previous two or three years?
Yadav: If you look at the last three to five years, largely the capex on the road sector was funded by the government, either through engineering, procurement and construction (EPC) or hybrid annuity model (HAM) project. And we are not bidding for the EPC and HAM. Accordingly, it will not be appropriate to comment on that side. We have a few projects in Maharashtra, that is Mumbai, Pune and three more build–operate–transfer (BOT).
Also Read: After BJP’s big Maharashtra win, what’s next for Mumbai’s real estate sector?
But in terms of the traffic growth; talking about the last six or eight months, it was muted because typically we have seen during the general election that the activity is on the lower side and with a stable government and now clear mandate in Maharashtra, we should see growth in the traffic in the coming quarters.
Q: You look at a large amount of data, but largely national capex, like the CMIE, what has been Maharashtra’s record in the past five years compared to itself and compared to other states?
Murkute: Capex trends have been pretty central and a very important indicator for economic development. We at Care Ratings also track this data pretty closely.
Early this month, when we published a report on the capex, what came to our notice is like in the previous years, Maharashtra continues to remain at the front in terms of project announcements, basically in terms of investments announced in the state as well as in terms of completions.
More pronounced, if I have to pick up for the first half this year, FY25, the number of projects which have been announced in the state of Maharashtra has increased to close to about 35% of the overall investment projects announced amongst all the 20 major states vis-à-vis in FY24, this number would have been closer to about 20%. So, to a large extent, it does indicate that the investment rigour and the focus continue to remain strong in the state.
Second, when we look at the other important metric, as you also mentioned sometime back, in terms of the project completions. So there as well, we do notice that in H1FY25 (first half of the financial year) Maharashtra continues to lead the pack in terms of project completions, close to about 19% of the overall 20 major states that we have been tracking. This number was close to our 14% for FY24.
So, all in all, what we observe for Maharashtra is not just the manufacturing sector. Infra has been a fair bit of a central focus for the state, and the recent big marque projects, which have been announced should bolster some additional activity in the state for some more time.
Q: In short, do I understand that Maharashtra has done well and done well even in the last six months when supposedly it was a lame-duck government?
Murkute: Yes.
Q: Therefore, would you say that state governments do not play a very active role? I know you are not interested in EPC, but more generally, in your experience, the decision-making happens because of the bureaucracy, and it is not stalled too much by state governments. Would that be a fair assumption?
Yadav: Yes. Typically, a large portion of the infra project comes from the central and that activity continues. This time the gap between the central election and the Maharashtra election was only six months. So, there was a lower activity as far as the central awarding agency is concerned. But in terms of the Maharashtra government, we have seen the award activity even pre-election as well, though those were the EPC projects, there was an award from the Maharashtra government.
Q: What is your assessment of the capex cycle itself? If you take everyone – central PSUs, private sector, as well as government-owned like NHAI kind of projects. Where is the capex cycle? Has it picked up? How does it compare say, to the previous 10 years from 2010 to 2019, pre-COVID?
Vyas: We aren’t doing very well. We began this fiscal year with the elections, and therefore the new investment proposal slowed down understandably, and so did completions. Since a lot of the capex movement in the recent past has been government-driven, one could understand that elections and restrictions around that period lead to a slowdown, or a substantial slowdown, in the announcements and in the completions.
But what is disappointing is that the September quarter also turned out to be bad. It is quite low in terms of new investment proposals and completions. The quarter was better than the June quarter, but still, it was quite low compared to all other quarters since the pandemic. The pandemic was, of course, a meltdown, and this second quarter was not very enthusiastic, was not very enthusing. And we push the envelope a little and see what is happening in October. And in October, it turns out to be even worse.
So, the new investment proposals, for example, are less than a trillion, when the average is much higher, like 6 trillion. So, 2 trillion in a month approximately and we are seeing like — it was 0.53, so maybe revised later, but new investment proposals are very low and the completions also are largely delayed. So, one could blame the central government elections first, then one can blame the Jammu and Kashmir and Haryana elections, then one can blame the Maharashtra and Jharkhand elections, but you can’t keep blaming this, and investment should not be so captivated by the political cycles.
Q: Would you agree that the capex cycle is not as robust as we have seen in previous cycles?
Murkute: In fact, that is where we also concur pretty closely. In terms of the capex cycle, both central as well as state capex, have kind of faltered from the previous achievements which we have seen in the past, adding to the first quarter, which was largely a meltdown or a restriction, which we noticed from the general elections. Q2 saw some green shoots in the central capex, but on an overall basis, for H1, we have observed that there is a contraction in the centre as well as state capex by about 15 to 10.5% on a YoY. So hopefully this now should kind of rest. But yes, we are still short in terms of our achievement on capex cycles.
Catch all the latest updates from the stock market here
About The Author
