Stocks to buy: Centrum picks 4 infrastructure stocks for up to 35% upside
- In the roads sector, construction activity is expected to pick up in the second half of FY24 and several projects won in the last few quarters would start contributing to revenues of the companies.
The infrastructure sector has been under investors' radar amid the government’s strong focus on building roads and highways and developing public infrastructure.
In the roads sector, construction activity is expected to pick up in the second half of FY24 and several projects won in the last few quarters would start contributing to revenues of the companies.
Moreover, higher budgetary outlay for roads in the Union budget should support project awarding ahead. Commodity prices have also corrected and with the pause in interest rate hikes by the RBI, government’s thrust on roads, and improved credit availability from banks are the encouraging factors for the sector.
However, intensified competition remains an issue. Analysts expect players with decent order books, strong balance sheets and presence in two or more segments are better placed to capitalize on the opportunity.
Among the infra stocks, Centrum Broking has a Buy rating on G R Infraprojects, HG Infra Engineering, KNR Constructions and PNC Infratech.
G R Infraprojects | Buy | TP: ₹1,603
Centrum Broking builds in 5% and 2% YoY increase in Revenue and PAT for GR Infraprojects on account of weak order inflow in FY23. The order inflow momentum has not picked up yet with only 2 order wins aggregating to ₹1,820 crore, YTDFY24. EBITDA margins are expected to remain stable at 14.5%, flat on QoQ basis. As a result, absolute EBITDA is likely to increase by 4.1% YoY respectively.
Despite a healthy orderbook of ₹26,800 crore (including L1 orders), the executable orderbook is currently only ₹10,700 crore (1.3x FY23 revenue). Overall equity requirement for the company including support for the BOT assets is in excess of ₹2,500 crore and hence asset monetization through InvIT is a must, for which, the company has received an observation letter from SEBI for the InvIT IPO, the brokerage house said.
It expects execution to pick up sharply post 3QFY24.
It has a ‘Buy’ rating on the stock with a target price of ₹1,603 per share, implying an upside of 32% from Thursday’s closing price.
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HG Infra Engineering | Buy | TP: ₹1,283
HG Infra’s orderbook stood at ₹11,670 crore as on June 30, 2023. Out of the 4 HAM projects lined up for monetization, the company has received approval for 3 projects amounting to EV of ₹1,090 crore which translates to equity value of ₹400 crore. The completion of the sale is expected in November 2023 which would free up capital for future growth.
Moreover, HG Infra Engineering is expected to report yet another good set of numbers for Q2FY24 after reporting a healthy growth of 19% in Q1FY24. The brokerage expects the company to deliver 25% revenue and 21% PAT growth in Q2FY24. EBITDA margins are expected to be flattish at 16% on YoY basis.
The brokerage has a ‘Buy’ call on the stock with a target of ₹1,283 per share, expecting an upside of over 35% from October 12 close.
KNR Constructions | Buy | TP: ₹287
Centrum Broking also has a ‘Buy’ rating on KNR Constructions and a TP of ₹287 per share.
KNR Constructions’ orderbook as on June 2023 stood at ₹6,260 crore. Given the lower size of the orderbook, the execution in H1FY24 is likely to be muted, as per the brokerage.
The company has signed concession agreement for 3 HAM projects with EPC value of ₹1780 crore and is awaiting FC/AD which is likely to contribute to revenues towards the end of FY24 and in FY25. Progress on the pace of irrigation orders would be a key monitorable which would be an added impetus for overall execution in the current fiscal.
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PNC Infratech | Buy | TP: ₹419
PNC Infratech currently has a total of 27 projects, out of which 22 are HAM projects and rest BOT. 7 projects have received COD/PCOD, 11 are under construction and concession agreement signed for 4 projects.
Total equity requirement for the asset business stands at ₹2,900 crore out of which ₹1,710 crore has already been invested as of June 2023. Sale of its HAM assets remains a key monitorable for the company, the brokerage said.
Centrum Broking has a ‘Buy’ call on the stock with a target price of ₹419 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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