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Last Updated : Dec 13, 2019 10:55 AM IST | Source:

Here's why Nomura feels 3 road infra companies are a good bet

Indian road infrastructure is a big opportunity which investors can’t afford to miss as there is more than Rs 8.5tn or Rs 8.5 lakh cr in the Central government pipeline alone.

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Indian road infrastructure is a big investment opportunity which investors can’t afford to miss as there is more than Rs 8.5 trillion (Rs 8.5 lakh crore) in the Central government pipeline alone, Nomura highlighted in a report dated December 11.

Though bank credit stress and slowdown in order flows have had an impact on most infra companies, but Nomura expects companies with robust operating cash flow generation (OCF) and low leverage to emerge as winners and gain market share as the competition starts to decline.


In the times of financial stress, select infra companies will gain market share as they still have access to low-cost credit, unlike peers.

With a strong execution track record, lowest leverage and a strong orderbook, PNC Infratech is Nomura’s preferred pick in the sector. It also likes KNR Construction and Dilip Buildcon.


PNC Infratech: BUY| Target Rs 278| LTP: Rs 193| Upside 44%

Nomura placed PNC Infratech as a top pick in the mid-cap infra space. The H1FY20 execution highlights management guidance is conservative, but further cash flows from asset sales add comfort to an already low-debt balance sheet.

Nomura increased their FY20/21F EPS estimates by 23%/13% to account for the new order wins and higher-than-expected execution.

The global investment bank continues to value PNC Infratech at Sep-21F EPS and add the FY21F BV of equity in BOT assets. However, the key downside risks would be a rise in working capital and reduced availability of bank finance, highlights the investment bank.

PNC with its combination of low standalone net debt, strong execution and strong cash generation going forward, is a preferred pick in the mid-cap road infra space.

KNR Construction: Buy| Target Rs 375| LTP: Rs 240| Upside 56%

KNR Construction has the best OCF generation track record in the sector. With increased visibility on the near-term execution and reasonably low valuations, Nomura maintains its buy rating on the stock.

KNR reported a pickup in execution in 2QFY20 after a weak 1Q. Further, with Appointed Dates in place for all its Hybrid-Annuity Model (HAM) projects and new short cycle and higher EBITDA margin irrigation projects in the current order book, Nomura sees increased visibility on KNR’s revenues.

The global investment bank has cut EPS for FY20F/21F by 2%/4% on the termination of one HAM project. Key risks are a worsening working capital and slower execution, as highlighted by Nomura.

Dilip Buildcon: Upgraded to Buy| Target Rs 505| LTP: Rs 377| Upside 34%

Nomura upgrades Dilip Buildcon to buy with a target price of Rs 505 after the recent selloff, and the ability to generate cash still remains high which gives comfort to the investment bank.

With Appointed Dates and an asset sale deal largely in place, Nomura draws comfort on execution and deleveraging from 2HFY20. An increase in cash generation is the key driver for the upgrade.

Shares have been largely flattish to down over the past 12 months. The stock is down almost 70 percent from its peak; meanwhile, the Nifty 50 rose 14 percent in the same period.

Investors were concerned about the company’s ability to arrange non-fund-based bank credit lines and get Appointed Dates which led to the fall. But, going forward, Nomura is confident of strong cash generation in 2HFY20F, and the asset sale deal with Cube for certain HAM projects should keep debt levels in check in FY21-22.

(Returns are calculated based on the closing price as on December 12.)

Disclaimer: The views and investment tips expressed by investment experts on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.


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First Published on Dec 13, 2019 10:54 am
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