The Central Government’s plan to announce a Rs 95,000 crore interest-free loan to states for capital expenditure marks a significant push towards infrastructure development and economic growth. This initiative, part of the larger Rs 1.5 lakh crore target for FY25, represents a strategic shift in policy implementation by removing conditionalities to accelerate fund disbursement. The move comes at a crucial time when states have been struggling to meet reform guidelines, with less than Rs 1 lakh crore approved so far. This development is expected to create substantial opportunities for infrastructure and construction companies, particularly those involved in state-level projects and development initiatives.
Government’s Push for Capital Expenditure in FY25
To achieve its Rs 1.5 lakh crore target for capital expenditure (capex) loans in FY25, the Centre is considering the option of providing additional funds to states without conditionalities. This move is expected to speed up the disbursement process and ensure that the allocated funds are fully utilized. By simplifying the release of funds, the government aims to encourage more public investment and infrastructure development across states, stimulating economic growth.
Converting Tied Savings into Untied Loans
The Centre plans to convert tied savings into untied loans to further ease the process for states. This would allow states more freedom to use the funds for projects of their choice, without being restricted to specific uses. Of the total Rs 1.5 lakh crore allocated for FY25, Rs 55,000 crore has been marked as untied loans. These funds can be used for a variety of state projects, while the remaining Rs 95,000 crore is tied to specific reforms aimed at industrial growth, infrastructure, and land reforms.
Slow Disbursements and Delays in Reform Implementation
Disbursement of the capex loans has been slower than expected, with less than Rs 1 lakh crore approved so far for FY25. In the first half of FY25, the Centre sanctioned Rs 70,000 crore and disbursed Rs 40,000 crore. However, these figures are far from the Rs 1.5 lakh crore goal. The delay in fund disbursements has largely been attributed to states’ slow progress in meeting reform guidelines. The guidelines, which were issued later than usual in August, coincided with elections, causing further setbacks.
Popular Focus Areas Under Tied Loans
The Rs 95,000 crore allocated under the tied loans has seen slower disbursements, with states struggling to meet the reform conditions. Among the 12 conditional allocations, tourism projects have gained significant traction, with many states prioritizing this area. Other key initiatives include working women’s hostels, vehicle scrappage programs, and urban land reforms. Additionally, Rs 25,000 crore of the tied loans is tied to states achieving at least a 10% growth in capex, with half of this amount contingent on FY24 performance and the rest on the growth in FY25.
Revisions in Capex Allocation for FY24
For FY24, the Centre had initially allocated Rs 1.30 lakh crore for capex loans but had to reduce it to Rs 1.05 lakh crore due to some states failing to meet eligibility criteria. States such as Andhra Pradesh, Kerala, and Punjab could not fulfill the necessary conditions, leading to the cut in allocation. This revision highlights the challenges states face in adhering to reform guidelines, reinforcing the need for timely and efficient implementation to fully access capex funds.
List of Stocks to benefit from this are:
Adani Enterprises
Adani Enterprises is a diversified company with businesses spanning across sectors like energy, resources, logistics, agribusiness, and real estate. It focuses on large-scale infrastructure and renewable energy projects, contributing significantly to India’s infrastructure growth.
In Q2 FY24, Adani Enterprises reported sales of Rs 22,608 crore, a 16% growth from Rs 19,546 crore in Q2 FY23. EBITDA rose by 55% from Rs 2,430 crore to Rs 3,766 crore, with an improved operating profit margin (OPM) of 17%, up from 12%. Net profit surged dramatically by 498% to Rs 1,989 crore, compared to Rs 333 crore in the previous year.
Adani Ports, one of the largest port developers and operators in India, provides logistics and port management services, enhancing trade efficiency through its vast port network.
Adani Ports posted a 6% increase in sales, from Rs 6,646 crore in Q2 FY23 to Rs 7,067 crore in Q2 FY24. EBITDA grew by 16% from Rs 3,664 crore to Rs 4,235 crore, with OPM improving from 55% to 60%. Net profit rose by 37% to Rs 2,413 crore, up from Rs 1,762 crore in the same quarter last year.
L&T
Larsen & Toubro (L&T) is a major multinational conglomerate with a strong presence in engineering, construction, manufacturing, and technology services. The company is recognized for its large-scale projects across infrastructure, defense, and technology sectors.
L&T’s sales grew by 21% from Rs 51,024 crore in Q2 FY23 to Rs 61,555 crore in Q2 FY24. EBITDA increased by 13% from Rs 7,040 crore to Rs 7,917 crore, with a slight decline in OPM from 14% to 13%. Net profit rose by 6.6%, reaching Rs 4,099 crore from Rs 3,846 crore, reflecting steady growth despite higher operational costs.
RVNL
Rail Vikas Nigam Limited (RVNL) is a public sector enterprise engaged in the development and construction of railway infrastructure. The company handles major railway projects, including track laying, electrification, and station modernization.
RVNL’s sales were almost flat, decreasing slightly from Rs 4,910 crore in Q2 FY23 to Rs 4,869 crore in Q2 FY24. EBITDA dropped marginally by 8%, from Rs 297 crore to Rs 273 crore, with consistent OPM at 6%. Net profit also saw a decline of 18.1%, falling from Rs 370 crore to Rs 303 crore, reflecting lower growth in project execution.
Written By: Dipangshu Kundu
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