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Awaiting fresh orders in the road segment

Muted road awarding; buildings, hydrocarbons, railways better off 

The Ministry of Road Transport and Highways (MORTH) awarding was down 48% YoY to 2,595km until October 2023 vs FY24 target of 12,500km and construction was up 10% YoY to 5,248km (~22km/day). The National Highways Authority of India (NHAI) new project awarding also was lackluster YTD. Within our coverage universe, road infrastructure-focused companies saw low-value order inflows YTD on account of less tendering from NHAI and MORTH. On the other hand, EPC-focused firms, such as NCC (NJCC IN), PSP Projects (PSPPL IN) and large companies, such as Larsen & Toubro (LT IN), have seen good inflows. Order inflows for our coverage companies for Q3FY24 stood at ~INR 680bn, which includes L&T, from sectors, such as buildings, hydrocarbon, railways, power and electrical. A majority of the orders was bagged by L&T at INR 660bn, NCC at INR 5bn, PSP Projects at INR 3bn, PNC Infratech (PNCL IN) at INR 11bn and Ashoka Buildcon (ASBL IN) at INR 2bn while KNR Constructions (KNRC IN) and HG Infra Engineering  (HGINFRA IN) have yet to see order inflows this quarter. The aggregate orderbook of our coverage universe, including L&T, stood at INR 5.7tn, up 15% YoY, as on Q3FY24 with an average book-bill ratio of 2.0x.

Execution to continue on healthy orderbook; stable material prices

For our infrastructure coverage universe, we expect revenue to rise by 12% YoY to INR 684bn on account of higher orderbook available for execution. EBITDA margin is expected to contract 95bp YoY to 10.2%, due to change in mix of projects, execution of low-margin projects by ASBL, KNRC, and LT. For Q3FY24, average steel prices corrected by 8% YoY whereas cement prices increased by 4% YoY.

Remain hopeful of a pickup

Nearly 6,000-7,000km of road projects are in the final stage of approval, which could come up for awarding in the near term. The delay seems to be on account of change in the mode of future project awarding and drawing up a new mega pipeline. Key monitorable would be a pickup in new order awarding and progress on asset monetization. Our preferred pick in the space is L&T, NCC, HG Infra Engineering, PNC Infratech and Ashoka Buildcon.

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