Q4 Preview: Axis Securities decodes strategy for Infra majors; picks PNC Infra, HG Infra, J Kumar as top picks

Dalal Street is all set to kick start the earnings season for the quarter ended March 2024. In its recent report on the Infra sector, brokerage firm Axis Securities said that it anticipates the pace of project awarding to gain momentum in FY25, as the shortfall in projects awarded in FY24 is expected to be compensated for.

"A robust pipeline of tenders is in place, which is projected to accelerate NHAI's awarding pace. Many road projects under the central government's flagship program ‘Bharatmala Pariyojana’ for building highways and expressways are expected to gain momentum, leading to further improvement in road construction pace," it said.

Additionally, higher budgetary allocation for roads in the Interim Union Budget – 2024-25 will support the construction of more highways and expressways. "Moreover, the National Infrastructure Pipeline, aimed at developing the overall infrastructure of the country, will also support road construction moving forward," it added.

Axis Securities believes that the majority of these projects will be awarded under EPC and HAM models, therefore, road construction companies will be the major beneficiaries of the government's infrastructure spending. The Road ministry is also looking to award many projects under the BOT (Built, Operate, Transfer) mode to reduce NHAI's debt burden.

With a robust and diversified order book, a healthy bidding pipeline, and softening commodity prices, the brokerage firm has maintained a positive outlook on the sector.

It has picked PNC Infratech, HG Infra Engineering and J Kumar Infraprojects as its top picks. For PNC Infra, it believes that the revenue would be higher owing to better execution on a year-on-year basis. Gross margins would also be higher owing to higher sales and lower raw material cost.

Gross margins for HG Infra would be lower on a YoY basis owing to higher cost. For J Kumar, the revenue would be higher on a yearly basis as the execution has improved. Gross margins would be higher too owing to lower cost.

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