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A general trend of strong awarding in the run-up to the general elections, and the recurring phenomenon (more often than not) of the year-end surges made FY23’s fresh investment intentions, tendering and awarding to be strongest in any single year. Besides the push for the two reasons above, a sound banking system, robust tax collections and sufficient foreign exchange reserves appear to be responsible for this feat. Gradually receding inflation sustains optimism regarding growth expectations. We see the momentum to persist in the run-up to the general elections. Yet, the fluid global scenario is the key risk. With this, we present our review of Q4 ordering and estimates.

Robust intentions, tendering and awarding. General trends of year-end surgesand strong ordering in the run-up to the general elections hold the key to strongawarding in Q4 (up ~57% y/y to ~Rs3.2trn), and an equally inspiring full year (up ~48% y/y to ~Rs8.8trn). This was well supported by Q4 investment intentions more than doubling (y/y to ~Rs14.6trn), leading to a ~63% rise in FY23 (~Rs37trn). FY23 tendering too was strong with the quantum rising ~51% y/y to ~Rs14.1trn, led by ~32% y/y higherQ4,and even stronger earlier quarters (9M up ~59%).

Sector performances. Electricity recorded the strongest growth in announcements and awards, but irrigation the most in tendering. The base effect contained growth in services & utilities, but still commanded ~60% of awards in Q4 and FY23.

Roadways; misses construction target, awards respectable. Though the pace of national highway construction rose from FY22’s ~29km a day to ~30km in FY23, it not only lagged the ~36km a day recorded in FY21 but also missed the ~34km a
day targeted for FY23. With this, MorTH (incl. NHAI) constructed 10,993km, against the targeted 12,500km. As for awarding, a late surge helped the MorTH (incl. NHAI) give out 12,375km in FY23 vs FY22’s 12,731km. We estimate the NHAI, on its own, to have awarded orders of Rs120bn-130bn in FY23 (FY22: ~Rs151bn).

Q4 FY23 revenue, comforting growth. We see aggregate Q4 FY23 revenue growth for the 16 names reviewed in this report at ~9% y/y, ~14% q/q. The growth would largely be a function of the better pace of execution at the appointed OB (true
y/y and q/q) and seasonality (true q/q). Of the names reviewed, we see PSP Projects, on a combination of a benign base and execution ramp-up on newer orders, to record the strongest y/y and q/q growths.

Margins respectable, sturdy earnings. We see the blended margin for the 16 names as a healthy ~14.5%. Though largely flat sequentially, the rising share of recent orders with greater profitability and some moderation in key inputs (from
recent highs) is likely to help the blended margin expand ~453bps y/y. Adjusted earnings are likely to have a positive rub-off from more revenues on the healthy EBITDA margin, contained rise in depreciation and checked finance costs.

Preferred picks: PNC Infratech, HG Infra Engineering, NCC and Ahluwalia Contracts. Sturdy balance sheets and proven execution abilities are the key common traits among the picks.

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