InCred Equities expects 10% year-on-year (YoY) growth in EPC sales in Q3FY24F for construction companies such as Dilip Buildcon, PNC Infratech and KNR Constructions. However, NCC is estimated to report a higher 37% YoY sales growth, driven by its strong order book, which is highest among peers.
For fee-based assets, the brokerage firm forecast 5% sequential revenue growth. It assumes a constant EPC-EBITDA margin for the companies, similar to that in 2QFY24.
The government’s capital on the infrastructure sector through budgetary support, and investment in public sector undertakings (PSUs) through internal and extra budgetary resources (IEBR) grew at 15% CAGR (FY16-23).
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Meanwhile, the brokerage noted that the execution of projects in the years of general elections fell by an average of 5% YoY in four previous occasions. This was independent of whether there was a change in the government or not.
The next general elections are scheduled for May 2024 and InCred Equities expects strong execution in FY24, followed by a slowdown in growth in FY25.
“The average order book-to-sales ratio was at 2.5x, slightly lower than that in March 2023 (2.8x). Order flow in H1FY24 was lower than the run rate in FY23. About 24% of the latest order book is due to be funded by private road developers, same as in FY19,” the brokerage firm said in a report.
Order flow in H1FY24 accounted for 21% of the order book. The brokerage firm factors in a 10% average EPC sales CAGR (FY23-25F), as the FY20-23 CAGR. Compared to March 2023 OB to sales ratio, the latest OB to sales ratio is lower for PNC Infratech, KNR Constructions, Dilip Buildcon and IRB Infrastructure and higher for NCC.
NCC, PNC Infratech and KNR Constructions are trading at a premium to their five-year average EV/EBITDA, while Dilip Buildcon is trading close to its average, the brokerage said.
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It has a ‘Reduce’ rating on NCC and KNR Constructions, valuing their EPC business at 6x/7x FY25F EV/EBITDA, respectively. It has a ‘Hold’ rating on PNC Infratech, valuing its EPC business at 6x EV/EBITDA.
IRB Infrastructure Developers: The company is estimated to see a 29% YoY increase in EPC sales and a 12% YoY increase in BOT sales driven by traffic and rates. Its revenue in Q3FY24 is expected to rise 27% YoY to ₹1,926 crore, while net profit may fall 16% to ₹118 crore, according to brokerage estimates.
Dilip Buildcon: The net profit of the company is expected to jump manifold to ₹103 crore in Q3FY24, Expect 10% YoY increase in sales and 12.7% EBITDA margin. This is slightly higher than the 12.1% EBITDA margin in Q2FY24 and close to management’s guidance of 13-14% EBITDA margin for FY24.
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PNC Infratech: The construction major is expected to see 8.4% YoY sales growth and a 13.2% EBITDA margin, similar to historical levels. Net profit during the quarter is expected to rise 10% YoY to ₹143 crores.
NCC: The brokerage expects a 37% YoY increase in sales as NCC has a high order book-to-sales ratio of 4x in September 2023 and a constant EBITDA margin of 10%, similar to historical levels.
KNR Construction: The company expects 14% YoY sales growth and a strong 19% EBITDA margin. Net profit is likely to rise 23.6% YoY.
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Published: 08 Jan 2024, 14:04 IST