Shares of NCC rose 6% to close at ₹108.4 crore and JKumar gained 1.2% on Wednesday. L&T ended 0.5% lower to close at ₹2,184 over the previous day’s close. On Tuesday, NCC had fallen as much as 9%, JKumar fell 5%, and L&T was down 1%.
According to media reports, the Karnataka government issued a circular saying all payments related to projects initiated by the previous government must be stopped. It also ordered to stop all work which has not yet started.
For NCC, orders from Karnataka account for 11% of its books, according to CLSA. In the case of JKumar Infraprojects and L&T, this is 2% and 1%, respectively
“The earnings of NCC may not be impacted much given NCC order book in the construction stage from Karnataka state is in low single digit if at all the receivables could be delayed for some time,” said Vishal Periwal, head of research (institutional) at IDBI Capital. The broking firm has retained a buy on NCC. More than half of the NCC’s projects in the state comprise the Bangalore Metro project, a JV between the state and the centre funded by multilateral agencies.
“It will be important to monitor jointly funded projects like the Bangalore Metro that will test the centre-state relationship fabric in India,” it added.
Jefferies said Karnataka should be less than 3-4% of L&T’s overall book and the impact should be limited.While recommending a buy on L&T, Jefferies said the central government’s focus on capex continues and guidance does factor in some ordering slowdown from November 2023 onwards before elections.
CLSA report said there is a ‘structural difference’ between the decisions of Karnataka and Andhra Pradesh (2019) to review projects – both of which happened due to the change in the state government.
“We think the structural differences in business models, such as awards only for competitive bids, multilateral investor scrutiny and no pre-election splurge in awards by the incumbent government, make the Karnataka Capex cycle different from AP and hence, there is reduced risk of stalled or cancelled orders,” the CLSA report said.
The YS Jaganmohan Reddy-led government in Andhra Pradesh cancelled all projects (where work was yet to start) sanctioned before April 1, 2019, by the previous government led by N Chandrababu Naidu.