India’s building 60 km of roads per day. How to profit from this opportunity

Market


That’s right. If and when achieved, this would be an unprecedented rate of construction. It would be among the best road construction rates in the world.

‘My ministry and my team is working hard, and even during COVID-19 pandemic time, our (highway) construction rate was 38 km per day and my ambition is to take it up to 60 km per day, it is a target’.

– Union Road Transport and Highways Minister, Nitin Gadkari

India achieved a rate of 28.64 km per day in 2021-22. This was quite low by India’s road construction standards. The pace had reduced due to Covid-related disruptions and a longer-than-usual monsoon in some parts of the country.

In 2022-23, construction activity picked up significantly. However, it has been hampered due to high input costs. As per a report by Crisil, India is likely to achieve a rate of around 32-34 km per day.

Now this rate is also quite good. In fact, before Covid, India had already achieved a record 37 km per day for in 2020-21. But the overall target is 60 km per day.

So how will this ambitious target be achieved?

Well to start, the two government agencies in charge of this target are the National Highways Authority of India (NHAI) and the National Highways and Infrastructure Development Corporation (NHIDCL).

Now, these agencies won’t build all the roads themselves. They offer contracts to private players to ensure high-quality, timely deliveries of various road projects all across the country.

Many of these private firms and their suppliers are listed on the Indian stock market. This provides a way for investors to profit from India’s road-building boom.

Consider the fact that the Indian government wants to massively scale up road construction in the country. Thus we can expect to see several projects being awarded over the next few months.

Despite a slowdown in construction in 2021-22, the pace of awarding contracts remained high. In 2021-22, the government awarded 12,731 km of road projects. The target for 2022-23 is 12,000 km.

We can expect the pace of road construction to pick up massively from the next month onwards as the monsoon ends. Even if the ambitious 60 km per day target is not achieved in 2022-23, there’s a decent chance it being achieved in 2023-24.

Investors with a horizon of at least two years can consider stocks of companies that will benefit from this boom.

Companies to watch out for

Here’s a list of listed companies in road construction which are likely to be the big beneficiaries of India’s ambitious road building spree.

· IRB Infra

IRB Infrastructure Developers (IRB) has extensive experience in road and highway construction. It is also present in multiple other sectors, including real estate, airport development, and maintenance of roads.

The company owns and manages 12,000-lane km roads across ten states. It also has a 20% share in the golden quadrilateral highway. It operates one toll-operate-transfer (TOT) project, two build-operate-tra Pnsfer (BOT) projects, and four hybrid annuity model (HAM) projects.

Going forward, with government’s continued focus on creating infrastructure and IRB Infra’s ability to build its order book will drive its revenue growth.

· Larsen & Toubro

Larsen & Toubro (L&T) is one of the leading players in the engineering and construction sector. The company provides engineering, procurement, and construction (EPC) solutions in India and the international market.

Some of the key business sectors for L&T are infrastructure, hydrocarbon, power, defence, and information technology.

· Gayatri Projects

Gayatri Projects is one of India’s largest infrastructure companies. It’s the flagship company of the reputed and diversified Gayatri Group.

The company has interests in infrastructure, power, hospitality, real estate, and industry. It’s headquartered in Hyderabad.

· Dilip Buildcon

Dilip Buildcon, founded in 1987, has emerged as one of India’s top infrastructure companies. It’s actively involved in developing several road projects on an EPC basis.

It’s also among India’s fastest-growing road contraction companies. Over the years, the company has developed a reputation for delivering projects on time with high-quality standards.

· Ashoka Buildcon

Ashoka Buildcon was incorporated in the year 1993. The company is engaged in the business of construction of infrastructure facilities on an engineering procurement and construction basis (EPC) and built operate and transfer (BOT) basis and sale of ready mix concrete.

It has promoted special purpose vehicles (SPVs) for some of its projects wherein ‘Toll Collection Rights’ are received in exchange for the construction cost.

The company has four divisions – build operate and transfer (BOT), engineering procurement & construction (EPC), RMC & bitumen, and toll collection.

· HCC

HCC ltd is one of India’s pioneering infrastructure companies. Founded in 1926, this company has executed several landmark projects.

It has a presence in several infra sectors like roads, highways, bridges, metro lines, ports, dams, tunnels, water supply, irrigation, water treatment, real estate, and even nuclear power plants.

As a large infra company with proven expertise, the company should benefit significantly from the Indian government’s huge road development push.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

 

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