InCred Equities expects 10% year-on-year (YoY) growth in EPC sales in Q3FY24F for construction companies such as Dilip Buildcon, PNC Infratech and KNR Constructions. However, NCC is estimated to report a higher 37% YoY sales growth, driven by its strong order book, which is highest among peers.
For toll-based assets, the brokerage firm forecast 5% sequential rise in revenue. It factors in a steady EPC EBITDA margin for the companies, similar to that in 2QFY24.
The government’s capex on the infrastructure sector via budgetary support, and investment in public sector undertakings (PSUs) by way of internal and extra budgetary resources (IEBR) grew at a 15% CAGR (FY16-23).
Meanwhile, the brokerage noted that project execution in the years of general elections fell by an average 5% YoY in four prior instances. This was independent of whether there was a change in the government or not.
The next general elections are scheduled in May 2024 and InCred Equities expects a strong execution in FY24, followed by a dip in growth in FY25.
“The average order book-to-sales ratio was at 2.5x, a tad lower than that in Mar 2023 (2.8x). Order inflow in H1FY24 was lower than the run-rate in FY23. Around 24% of the latest order book must be funded by private road developers, just like in FY19,” said the brokerage firm in a report.
Order inflow in H1FY24 accounted for 21% of the order book. The brokerage firm factors in a 10% average EPC sales CAGR (FY23-25F), like the FY20-23 CAGR. When compared to the Mar 2023 OB-to-sales ratio, the latest OB-to-sales ratio is lower for PNC Infratech, KNR Constructions, Dilip Buildcon and IRB Infrastructure and higher for NCC.
NCC, PNC Infratech and KNR Constructions are trading at a premium to their five-year average EV/EBITDA, while Dilip Buildcon is trading at close to its average, said the brokerage.
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It has a ‘Reduce’ rating on NCC and KNR Constructions, valuing their EPC business at 6x/7x FY25F EV/EBITDA, respectively. It has a ‘Hold’ rating on PNC Infratech, valuing its EPC business at 6x EV/EBITDA.
IRB Infrastructure Developers: The company is estimated to see 29% YoY rise in EPC sales and 12% YoY rise in BOT sales driven by traffic and tariff hikes. Its revenue in Q3FY24 is expected to rise 27% YoY to ₹1,926 crore, while net profit may fall 16% to ₹118 crore, as per brokerage estimates.
Dilip Buildcon: The company’s net profit is expected to jump multifold to ₹103 crore in Q3FY24, Expect 10% YoY rise in sales and 12.7% EBITDA margin. This is a tad higher than the 12.1% EBITDA margin in Q2FY24 and close to management’s guidance of 13-14% EBITDA margin for FY24.
PNC Infratech: The construction major is expected to see 8.4% YoY sales growth and 13.2% EBITDA margin, similar to historic level. Net profit during the quarter is expected to rise 10% YoY to ₹143 crore.
NCC: The brokerage expects 37% YoY rise in sales as NCC has a high order book-to-sales ratio of 4x in Sep 2023 and steady EBITDA margin of 10%, similar to historic levels.
KNR Construction: The company is expected to see 14% YoY sales growth and strong 19% EBITDA margin. Net profit is likely to rise 23.6% YoY.
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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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Published: 08 Jan 2024, 02:04 PM IST