Topic: The Great Indian Infrastructure Boom! Posted: 26/Jul/2006 at 7:24pm
the recent edition of bw had most of its pages dedicated solemnly to the franatic infrastructure development including the editors column explaining the reason of placing the pic of delhi metro tunnel as the cover preety interesting actually now coming to the point and really did'nt had the paitence of going through all the pages as a dedicated reader because i'm not one never the less what the whole point mentioned here was that infrastructure developing companies have there hands full for few coming years and i have personally witnesssed the growth of L&T price in last one and a half year was mind boblling and yet i dont hear much about the stocks any infrastructure developing or any real estate company like dlf here this was teribble to see so this discussion that i'm intiating here with a sense to gather views of this particular sector so that we may be able to see what further growth can be expected in this sector and what new companies that can give us the kind of the growth that as investors in this sectors we deserve
Edited by basant - 26/Jul/2006 at 1:17am
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Posted: 26/Jul/2006 at 7:36pm
Of course there is a lot of construction going on and they would keep happening but there are some sectors in businesses where shareholders finally lose Construction is one of them. In the great US Rail road boom of the 1850's there was a huge construction boom all across the US and NONE of the companies survived to make money for shareholders over the enxt two decades. Now L&T is different and should be kept away from the rest but the basic problem with Infratsructure companies over a long run are :
1) They require too much cash every time. They are basically cash guzzlers.
2) They work on thin margins so any rise in input prices works to their disadvantage. they have clauses for compensation on this account
3) Some contracts run into years so their accounting practices (Contract A/c) could be in for scrutiny.
Therefore I feel that within the construction sector it would be better to stick to the leader and not catch the next emerging leader!
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Infrastructure Stocks are much talked about every one ...but as it has been pointed out, that construction stocks might not reward the shareholders to their satisfaction .....i think infrastructure finance companys should do well ......for eg IDFC
your points do make some sense to me do tell me some more about
infrastructure finance companies as you said wouldn't they be the one
with most of their money give to the cash guzzlers
www.halwasiya.uni.cc
“Wining is not everything, it is the only thing”
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Posted: 26/Jul/2006 at 10:33pm
IDFC has able management and should do well but with the others 2nd line construction companies there has been a lot of talk on how they are accounting for their 2 year 3 year contracts.
A company that does not complete a project should take into its account only the work completed that has been certfied by the client, out of this a reasonable amount should be kept as reserve and the balance taken into P & L. This is a very grey area and you can twist the accounts the way you want to show your netincome. Over the past several quarters all construction companies are claiming that they have their orders full. if that is the case then why arenet margins not increasing - once you are full with orders you will take only those projects which give you higher margins while ignoring the low margin ones.
Yes money can and will be made in every stock but the point is that many a times a PE hides more then it reveals and for a high risk high return investor construction stocks are great but for some one who is trying to do a complete analysis there are areas for which you would have to depend on what is being said and written by the management.Therefore one should stick to the best probably L& T is one that comes to mind
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
so you suggest to stick to old and reliable in this particular sector
and be very cautious for the new one and what about the infrastructure
finance company stick to the same rule
wining is not everything, for me it is the only thing
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Posted: 26/Jul/2006 at 11:05pm
Not quite that way but if you are convinced about the new management companies then go ahead and buy it. But the point that i am trying to make is companies that are sketchy on management and corporate gov issues should better be avoided.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
As far as finance companies go, we should always remember that finace is a derivative industry.... they benefit if the underlying does well... So buying Infrastructure Finace Cos. as a risk-averse argument, doesnt make any sense.
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