Road infra: Q4 results to reflect softening input costs, better NHAI awarding and execution

Road companies’ Q4 results to reflect softening input costs, better NHAI awarding & execution

The rising pace of project awarding by the National Highways Authority of India (NHAI) is seen as increasing the momentum in road projects for building highways and expressways. With this, the pace of road construction is also expected to improve further, according to analysts.

Additionally, the higher budgetary allocation for roads in the recent Union Budget is also seen as supporting road construction.

The profitability of road construction companies is expected to improve in the March quarter due to softening of commodity prices. With a robust and diversified order book, a healthy bidding pipeline, and softening commodity prices, most brokerage firms are bullish on road infrastructure companies.

“With a spurt in project awarding by NHAI, order books of road construction companies are likely to spike on a QoQ (quarter-on-quarter) basis. Plus, acceleration in execution, along with stability in commodity prices, will result in decent QoQ EBITDA (earnings before interest, taxes, depreciation and amortisation) growth for the companies,” Motilal Oswal Financial Services said.

Generally, Q4 is a strong period for project execution. Axis Securities sees the quarterly performance of KNR Constructions, PNC Infratech, HG Infra Engineering, G R Infraprojects, and KEC International reflecting better execution results.

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With bidding and awarding activity accelerating during the March quarter, project awarding by NHAI has gained momentum, as it awarded 4,300 km of projects till February 2023 against 1,550 km in the first eight months of FY23. Since the first half of FY23 was soft in terms of project awarding, NHAI increased the pace to meet its targeted project awarding of 6,500 km in FY23, Axis Securities highlighted.

“We expect road construction companies under our coverage to report Revenue / EBITDA / PAT growth of 21 percent / 22 percent / 26 percent QoQ and 9 percent / 5 percent / 6 percent YoY (year-on-year), led by superior execution, supporting higher profitability during the quarter,” the brokerage firm said.

According to Kotak Institutional Equities, March quarter results of road companies should reflect improved execution on fairly strong order books.

It believes that companies such as IRB Infrastructure Developers should see strong YoY increase in toll collections due to toll rate hikes and improvement in traffic. Meanwhile, margins will depend on the project execution mix. Kotak Institutional Equities expects operating margin for the company’s EPC division at 26 percent and for G R Infraprojects at 15 percent.