Road infrastructure companies are headed for a brighter future, given the surge in order inflow. IRB Infrastructure bagged two Hybrid Annuity Model (HAM) projects in Tamil Nadu worth Rs 34.9 billion on Wednesday. Dilip Buildcon, Sadbhav Infrastructure Projects, KNR Constructions and Ashoka Buildcon have also seen good order inflow.
Though the first nine months (April-November) of 2017-18 saw muted order book growth, there has since been a spurt in theses from National Highways Authority of India (NHAI) and other government projects. Most big construction entities surpassed their FY17 orders in the first 11 months of FY18, say analysts at Kotak Institutional Equities.
This bodes well and improves their earnings visibility. Most of the benefits of the recent orders will start accruing from the second half of FY19 and, says Divyata Dalal at Sytematix Shares, will significantly improve the earnings outlook for FY20.
Importantly, more orders are expected. Companies foresee a situation where a project could be awarded every few days, say analysts at IIFL, who feel a glut is likely to manifest in the March and June quarters as agencies look to clear a backlog in this regard. The coming 2019 general election would spur this. Government announcements on NHAI inviting bids for 7,768 km worth Rs 1,416 billion support these expectations.
Analysis shows 61 and 38 per cent are HAM and EPC (engineering, procurement and construction) projects; only one per cent are toll ones. Hence, asset-light road construction players in the EPC and HAM space remain in a sweet spot
Among stocks, Kotak Institutional Equities retains its positive stance on Ashoka Buildcon and Sadbhav Infra. IIFL sees Dilip Buildcon and PNC Infratech, in addition to Sadbhav, as key beneficiaries.
Dalal says even KNR Constructions is also in a sweet spot. The company got its first HAM project a few days earlier, strengthening its order book. KNR hopes to add Rs 25-30 billion of new orders in FY18 and has a net cash balance sheet at standalone level; it can achieve financial closure of the HAM projects, say analysts at Kotak. Read More
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