Infra push: Analysts remain cautiously optimistic

Analysts are cautiously optimistic on the Centre’s big bang infrastructure push to achieve its $5-trillion economy target.

Finance Minister Nirmala Sitharaman on Tuesday released a report on the National Infrastructure Pipeline (NIP) that provides year-wise commissioning of infrastructure projects worth ₹1.02-lakh crore over the next five years. Projects are spread across power, renewables, roads, railways, and urban development including metros, education, irrigation, health, water, mobility and digital development.

The Centre’s move implies continued focus on infrastructure spending over the next five years with increasing budgetary support as a percentage of GDP every year till FY2025. “While the plan talks about funding requirements, its success depends on the availability of funds, which may turn out to be the key limiting factor of such an ambitious plan,” said Motilal Oswal Securities in a report.

Motilal Oswal recommends a ‘buy’ on L&T, as a preferred large-cap play, and KNR Constructions and Ashoka Buildcon, as key mid-cap plays, in the road sector.

Kotak Institutional Equities said order inflow from the road sector has remained below expectations, while it has remained strong across other segments such as railways, metros, mining, airports as well as state highways.

“Though we expect the targeted spend to spill over beyond FY25, it is still expected to result in average spend in the range of ₹10-15-lakh crore every year on implementation of NIP, resulting in a healthy ramp-up in order inflows for various players,” it said, and added, “our top picks remain L&T, DBL, Ashoka Buildcon, KEC and KPTL.”

Vinod Nair, Head of Research at Geojit Financial Services, said it is encouraging to note that this infra spending target is double that of the Central and State governments’ total spending in the last six years. “This can boost investor sentiment towards infra stocks. However, it is important to note that achieving this spending target will be possible only if the fiscal position of the government, which is fragile today, improves,” he added.

Prabhudas Lilladher in a recent report said that its interaction with industry players suggested that ordering momentum should pick up in the second half of FY20 and sectors such as roads, irrigation, factories, building, railways and mining should witness healthy awarding activity.

“Infra companies provide a good investment opportunity as the order-book-to-sales ratio at about 3.5x provides strong revenue visibility; execution is expected to garner pace; and most companies have a healthy balance sheet with comfortable leverage position,” it said.

Execution vs announcement

“We prefer companies with low debt, good corporate governance, lean working capital cycle, and high book-to-bill ratio. We initiate coverage on 11 infra stocks with KNR Construction, HG Infra and PNC Infratech as our top picks,” said Prabhudas Lilladher.

However, Sandip Sabharwal, an investment advisor, lent a sobering voice. In a tweet, he said: “Grand announcements on infrastructure investments are hardly going to help the economy. Last year’s Budget announcement of road sector orders have not even been met 50 per cent. Need implementation not announcements.”

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