Construction sector saw a marked slowdown in awarding activity in June quarter due to the government’s policy guidelines and code of conduct implemented in the run-up to the Lok Sabha elections. The overall highway construction fell to 1,288 KM in the June quarter against 1,465 KM in the year-ago quarter due to elections, extreme heat and unavailability of labours. Analysts noted that the central government has set a target of 12,000-13,000 KM of highway development for FY25. The reduction in target can be attributed to a slowdown in construction and project awarding throughout most of Q1FY25, when the model code of conduct for elections was in effect.
Nirmal Bang Institutional Equities said the main highway development scheme Bharatmala has exceeded its budget and completion timeline and is now awaiting further clearances for the National Masterplan for Highway Development before awarding can begin.
"While the Masterplan is being reviewed by the cabinet, the NHAI has decided to make a significant push for private investment in highway expansion using the Build Operate Transfer (BoT-Toll) model. It has identified 53 highway projects with a value of Rs 1.5 lakh crore that will be awarded to private companies and their total length will be 5,214 KM. Bids for eight highway segments totalling 297 KM in length have already been invited," Nirmal Bang noted.
To make BoT more appealing to private developers, the MoRTH has released a new Model Concession Agreement (MCA). According to Nirmal Bang, fresh awarding will start in 2HFY25. Easing of raw material prices and commodity costs could improve margins YoY in June quarter, Nirmal Bang said as it expects key focus of companies will remain on orderbook diversification in non-road segments.
Here's results preview for three major construction companies:
Ashoka Buildcon Ltd: Nirmal Bang expects Ashoka Buildcon to report 6.9 per cent YoY increase in revenue at Rs 1,637.80 crore on the back of strong orderbook execution. Ebitda margin is expected to expand to 9.1 per cent against 7.4 per cent in March and 4.6 per cent in the year-ago quarter. PAT is expected to jump 337.40 per cent YoY (down 39.2 per cent QoQ) to Rs 71.90 crore. Ashoka Buildcon's orderbook stood at Rs 11,690 crore (1.5 times FY24 revenue) as on March 31. The management’s focus remains on building a strong EPC business in Highways, Railways, Power T&D and Buildings as it targets to achieve orders worth Rs 12,000-13,000 crore in FY25.
"By June-end, it is likely to have received Rs 2,000-3,000 crore worth of orders with good margins. Potential orderbook break-up – (i) Rs 4,000-5,000 crore will come from Roads (ii) Rs 2,000 crore from Railways (iii) Rs 700 crore from Solar (iv) Rs 2,000 crore from Water Projects and (v) Rs 2,000 crore from international projects (presently, Guyana and Saudi Arabia)," it said while suggesting a 'Buy' recommendation on the Ashoka Buildcon stock.
KNR Constructions Ltd: Nirmal Bang expects KNR Construction's Q1 sales to rise 5.6 per cent YoY to Rs 981.60 crore. Ebitda margin is expected to remain flat QoQ at 16.3 per cent. Profit is expected to fall 16.1 per cent YoY to Rs 92.60 crore. KNR Construction's order book as of March 31 stood at Rs 5,300 crore. Nirmal Bang said KNR's orderbook position was healthy and provided a clear execution visibility for the next 2.5 years. The company is targeting an order inflow of Rs 5,000-6,000 crore in FY25, with Rs 2,000-3,000 crore expected in 1QFY25.
"It wants to diversify further into Railways, Irrigation (in states other than Telangana) and Mining projects. The company's net debt-free status on a standalone basis and strong balance sheet will power robust growth," Nirmal Bang said while suggesting a Buy on KNR Construction stock.
PNC Infratech Ltd: The June quarter revenue for PNC Infratech is seen rising 5.5 per cent YoY to Rs 1,963.80 crore. Ebitda margin is anticipated to be at 13 per cent. On YoY basis, PAT is seen rising 3.1 per cent to Rs 161.40 crore. The order book as of March 31 stood at Rs 15,500 crore. PNC Infratech is expecting Rs 8,000-10,000 crore worth of new orders (excluding Rs 5,000 crore already secured) in FY25. PNC has improved execution in its Water segment and expects it to be the key growth driver in FY25, Nirmal Bang said while suggesting a 'Buy' rating on the stock.