Axis Securities is bullish on PNC Infratech, HG Infra Engineering & Ahluwalia Contracts; here's why

As Dalal Street's third-quarter earnings season draws to a close, results have largely been along expectations. According to Axis Securities, road infrastructure companies under its coverage reported revenue growth of 7 per cent.

"The order inflow for companies remained tepid during the quarter owing to low awarding activity by the NHAI and higher competitive intensity in EPC projects. Managements have also reduced their order inflow guidance for FY24 by 30-40 per cent from their earlier envisaged number. However, they sounded positive and believed that order intake would accelerate in FY25 as the bidding pipeline remains strong at over Rs 1.8 lakh crore," the brokerage firm said.

"With the NHAI looking to award many road projects under the central government’s flagship program – Bharatmala Pariyojana for building highways and expressways, the pace of road construction will gain further momentum. Moreover, the National Infrastructure Pipeline, which aims to develop overall infrastructure, would support road construction moving ahead," it added.

Top stock picks from the sector

Axis Securities is betting on PNC Infratech, HG Infra Engineering and Ahluwalia Contracts with up to 24 per cent upside potential.

PNC Infratech

Rating: Buy | Target Price: Rs 510 | Upside: 24%

According to Axis Securities, PNC Infratech has an order book of Rs 17,380 crore (as of 31st Dec'23), indicating revenue visibility for the next 2-2.5 years. The order book is well diversified between Roads and Water projects. "This coupled with improved execution quality, we expect PNC to grow its revenue by 11 per cent CAGR over FY23-26," it said.

It added that the company, along with its wholly-owned subsidiary, PNC Infra Holdings Limited, has signed a Master Securities Purchase Agreement (SPA) with Highways Infrastructure Trust (HIT), an Infrastructure Investment Trust, to divest 12 of the Company’s road assets: 11 National Highway (NH) Hybrid Annuity mode (HAM) assets and 1 State Highway BOT Toll asset.

HG Infra Engineering

Rating: Buy | Target Price: Rs 1,080 | Upside: 15%

Axis Securities noted that the company’s order book stands healthy at Rs 9,623 crore (as of Dec 2023), comprising 51 per cent from the EPC road projects, 37 per cent in HAM road projects, and the balance 12 per cent from the Railway and Metro projects.

"The company also secured projects worth Rs 1,100 crore in the fourth quarter of FY24 from railways. 73 per cent of the total projects are from the Government of India, and the balance 27 per cent is from the private sector, implying revenue visibility for the next 2-3 years. We expect the company to post revenue growth of 17 per cent CAGR over FY23-FY25E," it added.

Going forward, the brokerage firm said that the company is looking to diversify more into railways, metros, and solar projects. The management expects 20-25 per cent of its order book to come from non-road projects in the next 2-3 years.

Ahluwalia Contracts

Rating: Buy | Target Price: Rs 1,110 | Upside: 5%

According to Axis Securities, the year-to-date order inflow stood at Rs 5,834 crore. The company is L1 in 2 projects worth Rs 3,230 crore, which are expected to be awarded soon. Additionally, the management expects to win additional orders of Rs 200-300 crore during the remainder of FY24.

"The company has also diversified and bid for projects such as airport buildings, metros, and urban infra, and it foresees more traction in commercial buildings, hotels, hospitals, and education buildings. Moreover, the company will focus on the private sector owing to the increase in private Capex, as there is less competition and more opportunities," it added.

(Disclaimer: Business Today provides stock market news for informational purposes only and that should not be construed as investment advice. Readers are encouraged to consult a qualified financial advisor before making investment decisions.)

 

 

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