Perhaps, the Street would have loved some more action in the construction sector, mainly roads, which has been the bedrock of infrastructure activity over the last several quarters. Although revenue grew on a year-on-year basis, the order flows were sluggish in spite of the low base due to demonetization in the year-ago period.

Data from the Centre for Monitoring Economy shows that new project announcements in the December quarter fell by 10.5% compared to the year-ago period. Frontrunners like KNR Construction Ltd, Sadbhav Engineering Ltd, Ashoka Buildcon Ltd, Ahluwalia Constructions Ltd and MEP Infrastructure said in their conference calls after the results that land acquisition delays deferred project awards in roads. Some exceptions such as the engineering conglomerate Larsen & Toubro Ltd posted a 38% jump in orders.

That said, the tepid growth in orders is not a grave concern as most of the firms boast of an order book two to three times their annual revenue, which is comfortable. Besides, the National Highways Authority of India Ltd is likely to announce tenders in both the hybrid annuity and toll-operate-transfer model soon. Till November 2017, NHAI has been able to complete 1,560km of roads; 1,940km (16km per day) must be completed by March 2018 to achieve its target of 3,500km. This should lead to lumpy order flow accretion in the March quarter.

However, during the December quarter, infrastructure construction firms stepped up the pace of execution, which translated into revenue growth of 10-12% on a year-on-year basis. A few such as MEP Infrastructure Developers Ltd almost doubled revenue as large road projects got off the ground.

Unfortunately, operating margins during the quarter narrowed marginally for most firms. Stiff competition among a handful of infrastructure developers, has thwarted margin expansion. Analysts believe that projects under the new hybrid model will see smoother completion and better profitability as most pre-requisites are in place before the order is awarded. Hence cost overruns will be minimized.

The Bharatmala road development plan, higher focus on water and railway projects and affordable housing, will improve the order flows for construction firms over the next two years.

But investors are now becoming more discerning about sifting the chaff from the grain. Large firms with leveraged balance sheets are not on the retail investors’ radar, even if they boast of strong order books. Also, the less inspiring December quarter results with lacklustre order flows and pale revenue growth led to most stocks shedding gains. Certainly, valuations at about 18-20 times the estimated earnings for FY2019 are fair, but revenue growth needs to be more robust for these stocks to lure investors.