Infra plays: Grabbing market attention

L&T, BHEL, Ashoka Buildcon, Sadbhav Engineering,Kalpataru Power and Alstom T&D among analysts' top picks

Infrastructure is among the top themes to play in the current scenario. Unlike last year when excitement towards infra plays surged only to wane out, this time around, there are indicators that things are improving at the ground level.

Infrastructure development is necessary if the government is to achieve the growth rate it is targeting, says Ambreesh Baliga, an independent market expert. Thus, companies in the railways, roads, and power transmission and distribution (T&D) space stand to benefit.

A Deutsche Bank note on infrastructure sector says mining would be early-cycle and is panning out, while power generation and T&D have picked up and, along with roads, urban infra and water should drive orders in FY16 and the first half of FY17. Smart cities, defence, nuclear, liquefied natural gas, and housing restarts are the new segments that could kick off from the second half of FY17.

While the government’s thrust on infrastructure is visible, the capital goods sector is also seeing some traction given recent data and order flow. The number of stalled projects is also down in the June quarter. Given the developments, experts prefer Larsen & Toubro and BHEL but recommend that investors use corrections to accumulate the two stocks.

In roads, the government is targeting 9,000 km of awards in FY16 versus only 3,000 km in FY15 and 1,500 km in FY14. It has also increased allocation to the sector in its 2015-16 Union Budget by almost 1.5 times. The ball is already rolling with companies bagging orders. Various measures to remove the hurdles across infrastructure segments have been taken, and experts believe it is not far before we could see visible traction in the sector.

However, some concerns still remain. First, many companies still have stretched balance sheets, and investors need to be selective in picking stocks. The toll business is another area of worry, say experts. Looking at the public sentiments against toll plazas, one needs to be cautious. Analysts though believe the government will try to balance public sentiments and interest of the companies. They do not expect retrospective action and also say that to lure investments, the government will have to keep the business environment conducive.

Kunal Sheth at Prabhudas Lilladher says in the past six months, build-operate-transfer (BOT) projects have seen intense competition. Nevertheless, there are players with proven track-record in execution of BOT projects and they still offer opportunities. He remains positive on Ashoka Buildcon and Sadbhav Engineering given their strong operating road portfolio, robust balance sheet and proven execution capability. In the engineering, procurement and construction segment, the preferred picks are KNR Constructions and MBL Infrastructures.

The power T&D space is also seeing action. About Rs 1 lakh crore worth of orders have been planned. This is one segment that did not see a slowdown even during the past four-five years when the economic environment turned weak. The preferred picks include KEC International, Kalpataru Power, Techno Electric, and Alstom T&D.