Infra outlook in 2021 looks bright with improving execution, strong order pipeline; 3 top picks by Yes Securities

During the year, the infrastructure sector performed well despite the lockdown. Agencies like NHAI alone awarded around 1,300 kms of projects during H1 FY21, which is 60 percent more than same period last year. Heavy awarding was also witnessed in Water and Irrigation segment during the quarter. The robust project awarding the different agencies has bloated the order books of several contractors. Some of the companies have already achieved their full year order inflow targets and are now comfortably placed.

Other than awarding, the government has also ensured sufficient liquidity in the hands of contractors, especially during COVID times. During FY21, NHAI paid more than Rs 15,000 crore to vendors and released significant retention money due. Payments are being cleared monthly as against milestone basis. NHAI is also fast tracking the pending arbitration claims and is also significantly working on out of court settlement with the contractors.

Model Concession Agreement (MCA) clauses in BOT-toll projects have also been changed and are more concessionaire friendly now. Execution has drastically picked-up on QoQ basis with labour availability improving every month and easing of lockdowns. Easing supply chain also helped in ramping up execution.

The stock performance has been improving post the correction seen in March/April. The better-than-expected pickup in execution and improved labour availability has drastically enhanced the outlook. Most companies have increased the full year revenue targets post September quarter results.