Friday, February 9, 2007

Momentum in the Infrastructure Sector in India

These days everybody is talking about Infrastructure projects. The award of ultra mega power projects and privatisation of airports demonstrates a committment at the highest level. So the momentum to build up roads, ports and urban infrastructure is building up for sure.

The JawaharLal Nehru Mational Urban Renewal Mission (JNNURM) initiative in 63 cities and urban transport projects will also drive up Investments in Infrastructure. Water Supply projects and sewerage projects would be part of the JNNURM.

There are three major stocks in the Infrastructure sector which is worth talking about. 1. Nagarjuna Construction (NJCC) 2. IVRCL and 3. HCC

Remember, do not go by the order book size alone, which is what many people do without understanding the intricacies. We need to understand the execution period of the order book, and the kind of margins that the company would make, given the kind of raw material prices at which it has booked these orders.

Even though it may look daunting, a lil bit of research helps you in understanding the stocks as well as improving your general knowledge.

NJCC, with its diversified order book is projected to grow it's revenue and earnings by 38% and 45% CAGR respectively. It has a land bank spread over eight different locations.

IVRCL has a well established franchise in water and irrigation projects and is now participating in increasing number og Road projects. The company is planning to list its Real Estate Division which could result in unlocking of value for investors.

HCC has focussed on large and complex projects and has a higher margin than its peers. With the Bandra-Worli sea link back in progress, its valuation should be on the up.

Construction companies should continue to grow at a rapid pace. But some companies can fool you with all the hype in the sector. I mean be careful with their order book projection and take a look at their margins.

Therefore, we need to do our homework before investing in such stocks. Of course, this applies to stocks from all sectors


Investing Gyan
Reviews, Tips, Calculators with an Indian perspective.
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