Budget 2025: Road construction stocks in focus on hopes of budget boost

For 2024–25, the Ministry of Road Transport and Highways (MoRTH) was allocated Rs 2.72 lakh crore, with actual expenditure by December 2024 estimated at Rs 1.75–1.8 lakh crore. However, project awarding slowed to 2,500 kilometers, compared to 3,100 kilometers in the same period the previous year.

The road construction sector is in sharp focus ahead of the Union Budget scheduled for February 1 as the road sector is widely expected to be the primary beneficiary of budgetary allocations.

Experts highlight the fact that increased infrastructure spending, with the largest share devoted to road network development, has been a hallmark of Union Budgets under PM Narendra Modi's governments.

Over the past five years, India's road network has expanded by 59 percent, becoming the second largest globally at over 6.7 million kilometers, surpassed only by the United States. This includes 1.46 lakh kilometers of national highways.

Despite some deceleration over the past two years due to higher social expenditures leading up to the general elections in May, analysts anticipate a significant year-on-year increase in the road sector allocation in the upcoming Union Budget.

For 2024–25, the Ministry of Road Transport and Highways (MoRTH) was allocated Rs 2.72 lakh crore, with actual expenditure by December 2024 estimated at Rs 1.75–1.8 lakh crore. However, project awarding slowed to 2,500 kilometers, compared to 3,100 kilometers in the same period the previous year.

The Gross Budgetary Support (GBS) is expected to increase modestly by 5–6 percent, reaching Rs 2.85–2.9 lakh crore.

A renewed emphasis on Build-Operate-Transfer (BOT) projects is anticipated, with 15 projects valued at Rs 44,000 crore in the pipeline. The government is also expected to revive the Bharatmala Pariyojana, focusing on completing the remaining 4,182 kilometers under Phase-I.

Delays in this flagship initiative have been attributed to cost overruns and administrative hurdles. Additionally, with the National Highways Authority of India (NHAI) holding a debt of Rs 2.8 lakh crore, the budget is likely to introduce measures to encourage asset monetisation to fund new developments and alleviate financial strain.

"Higher allocations with a government focus on reviving the muted capital expenditure and boosting economic growth. It will lead to enhanced private partnerships, monetization of highway assets, and higher projects awarded under the new Build-Operate-Transfer (BOT) model. From the FY25 budget, almost Rs40,000 crores were spent to repay the loans of NHAI, this time the government will focus more on raising funds through brownfield road assets monetization and project-based financing to repay the loans", said Ajay Garg, Director & CEO, SMC Global Securities.

According to Mandar Bhojane, Equity Research Analyst at Choice Broking, while budgetary estimates for road infrastructure have risen sharply, project execution often lags due to challenges such as land acquisition and regulatory bottlenecks. Infrastructure and EPC companies stand to benefit, though near-term gains may be constrained by these execution hurdles.

Industry experts also anticipate that this year's budget may place a stronger emphasis on improving rural road connectivity. However, the success of such initiatives will depend on the size of projects, returns for private developers, and streamlined clearances to address the challenges of long-gestation developments.

In terms of stock performance, over the past 1–2 years, this sector has delivered consistent returns, with companies like G R Infraprojects, KNR Constructions, PNC Infratech, and Dilip Buildcon demonstrating compound annual growth rates (CAGRs) ranging from 15 percent to 30 percent.

Analysts believe that valuations in this sector are more attractive compared to railways, buoyed by steady revenue growth and substantial government spending.