Light trails left by moving traffic run along a construction site for an elevated metro railway line in Nagpur. (Photographer: Dhiraj Singh/Bloomberg)
The government's increased spending on infrastructure projects led to a two-fold jump in new orders for the construction sector in the last financial year, said international brokerage house Credit Suisse.
The brokerage house, which initiated coverage on Dilip Buildcon Ltd. and J Kumar Infraprojects Ltd. with an 'outperform' rating, expects faster execution and lower interest costs to benefit the sector.
On Dilip Buildcon
- Initiate coverage with price target of Rs 650; Rs 560 for the engineering, procurement and construction vertical and Rs 90 for all its build-operate-transfer assets
- Key positives include focused execution and differentiation position
- Companies working towards churn in BoT portfolio which would improve return portfolio
- Expect the company to register 17 percent compounded annual growth from financial year 2017-20, on back of strong backlog execution worth Rs 17,500 crore
- Key risk includes delay in project execution and little flexibility to deal with down cycle
- Promoter family driven management also a constraint
On J Kumar Infra
- Price target of Rs 375, based on 18 times financial year 2018-19 earnings estimates
- A strong beneficiary of the government's focus on building infrastructure
- Strong growth visibility from executing its backlog
- Big backlog (6.5 times its sales in financial year 2016-17) to lead to a compounded annual growth rate of 23 percent over the next four financial years
- Key risks include project concentration and management's limited bandwidth
- Limited presence outside Mumbai
- Diversified beyond roads to build flyovers, skywalks and also parts of Mumbai's metro project.
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