4 construction stocks with good upside potential | Economic Times

The Union Budget continued to reflect the government’s infrastructure thrust and investors are happy. “With several measures, the government has articulated its focus on infrastructure and capital expenditure and this push in capex augurs well for economic revival,” says Motilal Oswal, MD & CEO, Motilal Oswal Financial Services. “Infrastructure spending was the theme for the last several years and this budget has pushed it up further. This move is very positive because this jump came on a high base,” says Anil Sarin, CIO-Equities, Centrum Broking. The allocation for capital expenditure has gone up significantly in 2021-22, by 35% compared to the 2020-21 budget estimates and by 26% compared to the 2020-21 revised estimates. More importantly, infrastructure and capital expenditure push are not restricted to the budget. Setting up of a new development finance institution (DFI) for infrastructure is a big move. This DFI is expected to have a loan book of Rs 5 lakh crore in three years. Since it will take time to set up this DFI, its impact will only be felt 2022-23 onwards. Several infrastructure projects are stuck at different levels and therefore, the proposal to set up a new asset reconstruction company (ARC) or asset management company (AMC) to deal with stressed assets is also good. The ARC will basically to clean up PSU bank loans stuck in infra projects. “Targeted investments through InvITs and streamlining of the management of stressed assets will create significant opportunities for infra companies. Introduction of the zero coupon bonds will increase funding for the sector,” says Ashutosh Bishnoi, MD & CEO, Mahindra Manulife Mutual Fund.1. HG Infra 80719810HG Infra surprised with y-o-y revenue and net profit growths of 28% and 58% respectively in the third quarter of 2021-22. “Since HG Infra has strong order backlog, and 100% of order backlog currently under execution, we expect revenue and EPS CAGR of 19.3% and 17.3% between 2020-21 and 2022-23,” says a Centrum report. 807198152. IRB Infra 80719821The unlocking process has helped IRB Infra revive its toll collection. The same has surpassed pre-covid levels in most of its build, operate and transfer (BOT) assets. “We maintain buy on IRB, given attractive valuation and comfortable liquidity position,” says a recent HDFC Securities report. 807198273. Kalpataru Power 80719833 Government focus on providing electricity to every household is good news Kalpataru Power Transmission, which builds power transmission towers. “Focus on operational efficiencies, cost optimisation and prudent working capital management is helping Kalpataru to improve performance,” says a Prabhudas Lilladher report. 807198434. Engineers India 80719869The Aatmanirbhar push will restart private sector capex. This is directly linked to capacity utilisation in a sector and thus is good news for players like Engineers India. “Current oil refining capacity utilisation stands at 100% and this warrants significant capex, implying improving business prospects,” says a Yes Sec report. 80719873What you should do nowExperts are bullish on infrastructure and allied sectors now because these had been underperforming for the past 10 years and have started looking up only recently. “Expansionary stance, by both fiscal and monetary policies, is supportive of growth. Companies from infra, construction and allied space will do well in the next one or two years,” says Gaurav Dua, Senior VP and Head – Capital Market Strategy, Sharekhan.Infrastructure is a broad theme and some sectors within it will benefit more and construction is one of them. The road construction space remained a sweet spot in the last Budget. In addition to 18% increase in budget allocation, monetisation of road assets will ease NHAI’s financing constraints and this is good for road construction companies.However, investors need to be careful with the valuations of construction companies because several stocks have already run up. “For road construction companies, ongoing national projects and recent budget allocation give visibility for the next few years, but these companies have to look at other areas gradually as the spend may not remain at these levels say three years from now,” says Deepak Jasani, Head of Retail Research, HDFC Securities. We have shortlisted only construction companies with enough analyst coverage and with good upside potential.