PNC Infra, HG Infra Construction, Ahluwalia Contracts top Road Infrastructure sector stocks by Axis Securities post Q3

Top Road Infrastructure sector ideas of Axis Securities post Q3 results include PNC Infratech, HG Infra Engineering Ltd, Ahluwalia Contracts.

During the December quarter , road infrastructure companies continued to benefit from strong order book led by government spending. However the festive season, state elections and pollution control measure in the Delhi National capital region (NCR) etc were some dampeners when it came to execution.

Analysts at Axis Securities said that companies under their coverage reported revenue growth of 7%. Earnings before interest, tax, depreciation and amortisation (Ebitda) was flattish, while adjusted net profits grew by 4% against their expectation of 14% revenue growth, 11% Ebitda growth and 13% yoy net profit growth. The results were clearly below expectations which Axis Securities attributes primarily to the underperformance of GR Infra projects and KNR Construction Ltd.

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Nevertheless PNC Infratech & H.G. Infra contributed positively on  Revenue, Ebitda and Net profit fronts, and their performances were largely in line with their expectations.

While GR Infra Projects & KNR Construction's performance was below their expectations on all counts, which impacted the overall performance. PSP Projects, KEC International & RITES' performance was below expectation on the Ebitda and net profit  front, they said.

Ahluwalia  Contract outperformed on all counts as per Axis Securities.

PNC Infratech Ltd:  Axis Securities has Buy ratings on the PNC Infratech stock with target price of   ₹510. 

PNC Infratech has an order book of ₹17,380 Cr (as of 31st December'23), indicating revenue visibility for the next 2-2.5 years. The PNC Infratech order book is well diversified between Roads and Water projects. This coupled with improved execution quality, leads Axis Securities to expect PNC Infratech to grow its revenue at 11%  CAGR (compounded annual growth rate) over FY23-26.

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HG Infra Engineering Ltd-  Axis Securities has buy ratings on HG Infra Engineering Ltd with a target price of ₹1,080. 

HG Infra order book stands healthy at ₹9,623 Crore (as of 31st Dec’23), comprising 51% from the EPC road projects, 37% in HAM road projects, and the balance 12% from the Railway & Metro projects.

HG Infra order book implied revenue visibility for the next 2-3 years. Axis Securities expect the company to post revenue growth of 17% CAGR over FY23-FY25.

Ahluwalia Contracts India Ltd: Axis Securities has a Buy ratings on Ahluwalia Contracts with a Buy rating and target price of ₹1,110.

Ahluwalia Contracts is in to other infrastructure construction business. Ahluwalia Contracts has an order book of ₹11,247 Cr (as of 31st Dec’23). 

Apart from the robust order book, Ahluwalia Contract is also L1 in two projects worth over ₹3,200 Crore said analysts at Axis Securities. The robust order book and L1 status give us revenue visibility for the next 3 years, said Axis analysts who are penciling in revenue growth of 25% CAGR for Ahluwalia Contracts over FY23-FY26 estimated and expect  Ahluwalia Contracts to post improved margins.

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