The upcoming budget is likely to provide a boost to the infrastructure sector and job creation. Government is likely to provide a higher allocation to road, power, telecom and IT ministries. Companies in infrastructure space are likely to benefit as increased capital spending will improve order books, top line and profits.
Let us look at some of the companies that will benefit from the increased outlay to Infrastructure sector:
KNR Construction: A leading EPC player with focus on national and state highway projects. Its order book continued to remain strong with total outstanding order book stands at Rs 3,587cr in Q2FY18. According to a research report by Geojit, company's strong order book, better execution capability, improving operational efficiency, strong balance sheet and earnings visibility are the future growth drivers. Moreover, government's strong focus on developing road projects will keep the company's outlook positive. The stock gained over 73% in the past one year compared to BSE Infrastructure Index that gained 27.5%.
IRB Infrastructure: The company is engaged in construction, project management and engineering. It executes build-operate-transfer (BOT) road and highway projects. According to a research report by ICICI Direct, IRB has a strong bidding pipeline of orders and is looking to win approx. 400-500 km of orders in FY18E. Its construction revenues are expected to grow strongly, with strong execution ahead. The company expects strong awarding activity on the PPP side with government expected to award PPP projects worth approx. 1.75 lakh crore under the BharatMala Pariyojana over the next five years. The stock underperformed the market in the past one year and gained 11% compared to BSE Infrastructure Index that gained 27.5%.
Sadhbhav Engineering: The company through its subsidiary SIPL has a strong BOT project portfolio, with sizeable operational assets. Its BOT projects are located in the states of Maharashtra, Gujarat, Rajasthan, Karnataka, Haryana and Telangana. According to a research report by Motilal Oswal, toll collection life of 17 years ensures sustained future cash flows and growth. Roads currently form the major portion of company's revenue as well as order backlog. Sadhbav Engineering will benefit as the road ministry intends to award most projects on EPC or HAM basis. The stock gained over 51% in the past one year compared to BSE Infrastructure Index that gained 27.5%.
Ashoka Buildcon: An integrated road infrastructure player with strong BOT portfolio that is spread across Maharashtra, Chhattisgarh, Karnataka, Madhya Pradesh, Orissa, West Bengal and Tamil Nadu. HDFC Securities expect the company's order book will grow by 1.4 times over FY18-20E. Moreover, its BOT margins are likely to expand as toll growth picks up. The company is well placed to gain from any pick up in the road sector activity. The stock gained close to 40% in the past one year compared to BSE Infrastructure Index that gained 27.5%.