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Amit Mitra
Deeptha Rajkumar

Mumbai, Sept. 9

THOUGH the stock of construction companies such as Nagarjuna Construction Co (NCC) and Hindustan Construction Company (HCC) ended the day in negative territory, going forward the market appears bullish on the sector.

This was also evident in the fact that NCC and HCC hit 52-week highat Rs 247at Rs 209.40 respectively during Thursday.

The market perception is that construction companies such as NCC, HCC, Era Construction and Jaiprakash Industries will be the prime beneficiaries of the infrastructure growth. "The economic barometer of the huge explosion that is set to take place is already visible in the consumption of steel and cement in the country. One cannot ignore the fact that the demand supply mismatch in cement sector is almost over," said a senior analyst with a reputed broking house.

Commenting on prospects of the sector as such, industry sources point out that though marked by intense competition and concomitant squeeze in profit margins, domestic construction companies face a bright future, as India steps up its infrastructure expenditure.

Experiencing a decrease in growth rate during 2003-04, the current fiscal had begun on a more sound footing. "There are three main triggers for these companies - housing market, infrastructure development and capital formation. If an economy has to grow 7-8 per cent we will have to have capital formation higher than that," reasoned an analyst.

According to market perception there is considerable scope in the road and power sectors for construction companies in the months ahead.

In the road sector, the National Highway Authority of India (NHAI) has plans for four-laning 14,286 kms of roads, which includes the Golden Quadrilateral and the North-South and East-West highways. As on March 31, 2004, 3,322 kms of these highways had been completed, while 4,118 kms were under construction and 6,733 kms remain to be constructed. "One can therefore expect many new road projects in the near future if NHAI has to meet its planned target," according to the analyst.

Similarly, in the power sector, construction companies can expect to get a steady stream of orders. Based on the recommendations of the Tenth Five Year Plan, new electricity generation projects are expected to produce an additional 41,110 MW of generating capacity.

Most construction companies have a healthy order book. For example, Hindustan Construction Co Ltd, by the end of last fiscal, the company's total value of unexecuted work on hand rose to Rs 3,975 crore, including its share in integrated joint venture projects, and was in the process of submitting pre-qualification bids for 14 projects worth Rs 17,905 crore.

Nagarjuna Construction Co's reported a 40-per cent increase in flow of orders in the last five months, while Era Construction, which has just bagged a Rs 80-crore order from NTPC for civil construction for its 3x660 mw Greenfield plant at Sipad, has an order book of about Rs 500 crore.

The stock of NCC ended at Rs 234.10, down 3.86 per cent, with around 26,060 shares traded on the BSE. HCC ended at Rs 195.35, down 5.33 per cent, with around 24,195 shares. Era Construction ended at Rs 101.50, up 4.91 per cen,t with around 1.39 lakh shares traded.

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