Brokerage Phillip Capital believes that the Q1FY20 order book has slightly dampened their optimism for the infrastructure sector, but that is temporary.
"Despite the muted order inflow over the last 5 months, almost all EPC (Engineering, Procurement and Construction) companies have decent orderbooks currently of 2.5-3x book-to-sales," it said in a report.
According to Phillip Capital, the order inflow was significantly low this quarter at Rs 107 billion primarily due to muted order award activity across segments. However, it expects this to change soon, and government bodies to start awarding orders from September 19 onwards, as their funds get released from the government and they start executing their FY20 plan.
"We expect significant order awards in roads (NHAI, UPEIDA, other states), metros (Delhi, Mumbai, Patna, Bangalore), buildings (PMAY) and irrigation (State and Centre) segments, in H2FY20,” Phillip Capital said in a report.
The NHAI projects have remained lacklustre over the last few quarters due to problems in acquiring land and financial closure of HAM (Hybrid Annuity Model) projects.
Another concern for the sector is the newly formed government in Andhra Pradesh. The state has decided to cancel multiple projects awarded by the earlier government and most of the projects have come to a standstill.
Despite the concerns, the research house is positive on the sector as it sees EPC companies delivering superior returns over the next 12-18 months.
Top picks of Phillip Capital from this sector are NCC, PNC Infratech, Ahluwalia Contracts and KNR Construction. The brokerage remains negative on ITD Cementation due to its inconsistent execution track record and unattractive positioning with respect to other segments.
First Published: IST