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After a prolonged period of stepmotherly treatment towards infrastructure stocks for a plethora of reasons, sentiment towards them has been finally changing in a positive way. In other words, infrastructure stocks are again gaining investor interest after a long hiatus.
Today, stocks such as Reliance Power, Reliance Naval and Engineering, RattanIndia Power, SJVN and JSW Energy closed up 2-11 per cent up, while the overall market was down sharply. In the last one week, stocks of companies such as BHEL, IL&FS Transportation Networks, Tata Power, IRB Infra, BEML, BF Utilities, PTC India, NCC, Titagarh Wagons, Suzlon Energy, Adani Power, NBCC (India), Reliance Power, RattanIndia Power, GMR Infrastructure, JSW Energy, Reliance Naval, Dilip Buildcon and HCC have risen in the range of 7-15 per cent. A few among the above such as NBCC, IRB and Dilip have gained 9-18 per cent in the last one month.
Unlike the past trend, more and more reports or ideas have started coming up on infrastructure companies.
Improved sentiment
In the last one month, analysts have come up with bullish/positive views on stocks such as NBCC, NCC, IRB, KNR Construction, Cummins India, PNC Infratech, GMR, Dilip, Sadbhav Engineering, NTPC, Siemens, L&T and Engineers India. Based on the estimated target prices, these stocks have an upside potential of 10-40 per cent.
The factors for improved sentiment towards the stocks are either industry-related or company-specific or a mix of both. The best example is the roads sector. Besides the sector’s prospects continuing to be promising, companies such as IRB, KNR, Dilip and Sadbhav have also been on strong footing.
“In FY18, NHAI achieved highest ever awarding (150 projects spanning 7,400 km and worth ₹1.2 lakh crore). We anticipate awarding in FY19 also to remain strong (upwards of ₹1 lakh crore). We believe developers with strong financials such as Sadbhav, KNR, Ashoka Buildcon and Dilip will benefit handsomely from the boom in road awarding,” said Parvez Akhtar Qazi, analyst at Edelweiss Securities.
Besides roads, the future of capital goods companies too is looking bright. “Order inflows in FY18 jumped 2.3 times year-on-year on low base and was driven by railways (traction equipment, electrification), power value chain, renewables and civil works. Execution will drive sales of the companies, going ahead,” said Deepak Agrawala and Harshit Kapadia of Elara Securities.
Regulated powergen cos
In the power value chain, analysts are most bullish on regulated power generation companies (NTPC) and transmission line companies such as KEC International and Kalpataru Power Transmission. While economic growth will lead to an uptick in power generation demand benefiting companies such as NTPC, the latter two have been garnering huge orders.
L&T remains the best pick in the space with its presence in almost all segments of infrastructure and one of the best/healthy balance sheets. Kotak Institutional Equities recently upgraded the stock to ‘buy’ from ‘add’. “We expect 11-12 per cent ordering CAGR over FY18-21 to be driven by announced large Central government schemes and uptick in private sector ordering from low base in FY18,” it said.
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