Article

Are Road Contractor Players in Recovery Mode?

09 Mar 2021 Nikita Bhoota

Road contractors reported healthy improvement in revenues and profitability during 3QFY21, as project execution normalised to pre-Covid19 days. Aggregate revenues for five road-focussed players grew 13% YoY, with most companies expected to report flat revenues YoY in FY21, despite a washout 1QFY21.

The outlook remains strong, with all companies boasting of good order books (book-to-bill: >2.5x) and strong award pipelines by the NHAI. Increased awarding from railways, water supply projects, etc would also help. Leverage should improve in coming quarters, driven by improved cash generation and recovery of receivables. 

Execution continues to improve in 3QFY21:

Revenue for road contractors continued to recover in 3Q, as execution normalised to the pre-Covid19 era. Aggregate revenues for the five road-focussed players grew 13% YoY and 25% QoQ. Sadbhav, KNR and HG Infra reported a healthy 23-28% YoY growth during 3Q, while PNCL reported 9% growth, albeit on a high base. Revenues for ASBL in 3Q were largely flat YoY. With a large part of the order books under execution for most contractors, we expect healthy revenue growth in 4QFY21 as well as 1HFY22.

Ebitda margins saw slight moderation: 
Ebitda margins for the five road contractors fell 60bps YoY on an aggregate basis, and declined 80bps on QoQ basis. The YoY decline was largely owing to lower margins for KNRC and ASBL, given the high base, change in project mix (lower share of projects nearing completion) and one-offs, even as margins for HG Infra and Sadbhav expanded YoY.

Margins are expected to remain stable, supported by higher execution and increased share of higher-margin HAM projects, as appointed dates have been secured for most projects.

Healthy order book for all road contractors
 
Order books of the five road contractors remain healthy, with book-to-bill of 2.5-5.5x. Apart from PNCL’s, a large part of the order books are already under construction for other players. In case of PNCL, the entire Rs180bn order book should be under execution by 1QFY22. Besides ASBL and HG Infra, other players have also recently won new orders. This lends healthy growth visibility for FY22.

Strong outlook for new awards in the near term:
After two years (FY19-20) of flat central-government spends on highways, the FY21 spend has sharply jumped up by 35%, despite Covid-19. The FY22 central-government allocation to highways is up by another 18%, to Rs1.08trn. In terms of awards, the government targets 8,500km of highway projects in FY22. Overall, of the 34,800km Bharatmala project, awarding of 21,800km is still pending, as of January 2021.


Stock Performance:
S&P BSE Sensex was up 4.6% (February 01, 2021- March 04, 2021) post Union Budget FY22 announcement. Here, we have discussed some road contractor’s companies’ stocks that have given positive returns or have underperformed the benchmark index S&P BSE Sensex in the same period.

 

Company Name

01-Feb-21

04-Mar-21

Gain/ Loss

PNC Infratech Ltd. (PNCL)

196.2

267.8

36.5%

HG Infra Engineering Ltd. (HG)

233.2

288.0

23.5%

Sadbhav Engineering Ltd.

60.0

73.8

23.0%

Ashoka Buildcon Ltd. (ASBL)

97.0

116.4

19.9%

KNR Construction Ltd.

203.2

207.8

2.2%

Source: Ace Equity

The stocks in the infrastructure sector have given healthy returns in the past one month. PNC Infratech rallied 36.5% from Feb 01, 2021 to March 04, 2021. HG Infra jumped 23.5% in the same period. KNR construction stock jumped the least at 2.2% in the past one month.

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Are Road Contractor Players in Recovery Mode?

09 Mar 2021 Nikita Bhoota

Road contractors reported healthy improvement in revenues and profitability during 3QFY21, as project execution normalised to pre-Covid19 days. Aggregate revenues for five road-focussed players grew 13% YoY, with most companies expected to report flat revenues YoY in FY21, despite a washout 1QFY21.

The outlook remains strong, with all companies boasting of good order books (book-to-bill: >2.5x) and strong award pipelines by the NHAI. Increased awarding from railways, water supply projects, etc would also help. Leverage should improve in coming quarters, driven by improved cash generation and recovery of receivables. 

Execution continues to improve in 3QFY21:

Revenue for road contractors continued to recover in 3Q, as execution normalised to the pre-Covid19 era. Aggregate revenues for the five road-focussed players grew 13% YoY and 25% QoQ. Sadbhav, KNR and HG Infra reported a healthy 23-28% YoY growth during 3Q, while PNCL reported 9% growth, albeit on a high base. Revenues for ASBL in 3Q were largely flat YoY. With a large part of the order books under execution for most contractors, we expect healthy revenue growth in 4QFY21 as well as 1HFY22.

Ebitda margins saw slight moderation: 
Ebitda margins for the five road contractors fell 60bps YoY on an aggregate basis, and declined 80bps on QoQ basis. The YoY decline was largely owing to lower margins for KNRC and ASBL, given the high base, change in project mix (lower share of projects nearing completion) and one-offs, even as margins for HG Infra and Sadbhav expanded YoY.

Margins are expected to remain stable, supported by higher execution and increased share of higher-margin HAM projects, as appointed dates have been secured for most projects.

Healthy order book for all road contractors
 
Order books of the five road contractors remain healthy, with book-to-bill of 2.5-5.5x. Apart from PNCL’s, a large part of the order books are already under construction for other players. In case of PNCL, the entire Rs180bn order book should be under execution by 1QFY22. Besides ASBL and HG Infra, other players have also recently won new orders. This lends healthy growth visibility for FY22.

Strong outlook for new awards in the near term:
After two years (FY19-20) of flat central-government spends on highways, the FY21 spend has sharply jumped up by 35%, despite Covid-19. The FY22 central-government allocation to highways is up by another 18%, to Rs1.08trn. In terms of awards, the government targets 8,500km of highway projects in FY22. Overall, of the 34,800km Bharatmala project, awarding of 21,800km is still pending, as of January 2021.


Stock Performance:
S&P BSE Sensex was up 4.6% (February 01, 2021- March 04, 2021) post Union Budget FY22 announcement. Here, we have discussed some road contractor’s companies’ stocks that have given positive returns or have underperformed the benchmark index S&P BSE Sensex in the same period.

 

Company Name

01-Feb-21

04-Mar-21

Gain/ Loss

PNC Infratech Ltd. (PNCL)

196.2

267.8

36.5%

HG Infra Engineering Ltd. (HG)

233.2

288.0

23.5%

Sadbhav Engineering Ltd.

60.0

73.8

23.0%

Ashoka Buildcon Ltd. (ASBL)

97.0

116.4

19.9%

KNR Construction Ltd.

203.2

207.8

2.2%

Source: Ace Equity

The stocks in the infrastructure sector have given healthy returns in the past one month. PNC Infratech rallied 36.5% from Feb 01, 2021 to March 04, 2021. HG Infra jumped 23.5% in the same period. KNR construction stock jumped the least at 2.2% in the past one month.