Best Infrastructure Stocks in India: Hidden Fortunes

India’s construction market is projected to reach US$ 1.42 trillion by 2027, expanding at a CAGR of 17.26% from 2022 to 2027. This growth has paved the way for infrastructure stocks in India to capitalize on the evolving market landscape. The government’s goal of making India a $5 trillion economy hinges significantly on advancements in the infrastructure sector. Explore how government initiatives and international investments are shaping the future of infrastructure development in India.

Industry Scenario- Indian Infrastructure Sector

The infrastructure sector in India is set for rapid growth, presenting numerous opportunities Here’s a closer look at the sector’s potential and some of the best infrastructure stocks in India.

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Rapid Market Growth– India’s construction market is projected to reach US$ 1.42 trillion by 2027, expanding at a CAGR of 17.26% from 2022 to 2027. (Source: IBEF)

Expanding Logistics Market– The logistics market is expected to grow from US$ 317.26 billion in 2024 to US$ 484.43 billion by 2029, with a CAGR of 8.8%. This sector accounts for 5% of India’s GDP and provides jobs for nearly 2.2 crore Indians.

Multimodal Logistics Parks– The Bharatmala Pariyojana will develop 35 Multimodal Logistics Parks (MMLPs) with an investment of Rs. 46,000 crore (US$ 5.5 billion). These parks will handle 700 million metric tonnes of cargo. Fifteen priority locations will receive Rs. 22,000 crore (US$ 2.6 billion) in investments.

Commitment to Sustainability– India aims for net-zero carbon emissions by 2070 and plans to achieve 500 gigawatts (GW) of renewable capacity by 2030.

Government Investments– The government allocated Rs. 2.76 lakh crore (US$ 33.4 billion) to the Ministry of Roads for 2024-25. The Railways received a capital outlay of Rs. 2.55 lakh crore (US$ 30.72 billion), a 5.8% increase from the previous year.

Metro Network Expansion– India has the fifth-largest metro network globally and aims to become the third-largest, surpassing Japan and South Korea.

Source: Information sourced from India Brand Equity Foundation (IBEF).

Sector Trend – Boosting Infrastructure for India’s Growth

India’s population growth and economic development demand enhanced transport infrastructure. This includes roads, railways, aviation, shipping, and inland waterways. Source: All Information below is sourced from the India Brand Equity Foundation (IBEF).

Key Initiatives

The “Smart Cities Mission” and “Housing for All” programs benefit from these improvements, modernizing urban areas and providing affordable housing.

International Investments

Saudi Arabia plans to invest up to US$ 100 billion in India across various sectors, bolstering infrastructure development.

National Infrastructure Pipeline (NIP)

To reach a US$ 5 trillion economy by 2025, India launched the NIP and other initiatives like ‘Make in India’ and the PLI scheme to drive growth.

Increased Capital Investment

The Interim Budget 2024-25 increased infrastructure investment by 11.1% to Rs. 11.11 lakh crore (US$ 133.86 billion), representing 3.4% of GDP.

NIP Project Expansion

The NIP now includes 9,142 projects worth Rs. 108 trillion (US$ 1.3 trillion). Currently, 2,476 projects are under development with an estimated investment of US$ 1.9 trillion.

Private Equity Investments

In May 2023, Private Equity and Venture Capital firms invested US$ 3.5 billion in Indian companies, providing crucial capital for infrastructure.

Growing Logistics Market

India’s logistics market is expected to reach US$ 320 billion by 2025, driven by spending on water supply, transport, and urban infrastructure. The overall infrastructure capex is set to grow at a CAGR of 11.4% from 2021-26. (IBEF)

Best Infrastructure Stocks in India

The best Infrastructure stocks in India are Larsen & Toubro Ltd, Rites Ltd, Likhitha Infrastructure Ltd, PNC Infratech Ltd, Rail Vikas Nigam Ltd, Ircon International Ltd, Mold-Tek Technologies Ltd, Engineers India Ltd, NBCC (India) Ltd, HFCL Ltd, GMR Airports Infrastructure Ltd, IRB Infrastructure Developers Ltd.

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Live Data as of 25th June 2024.

Let’s Explore Some Of The Best Infrastructure Stocks in India

Rites Ltd

Current Price: ₹ 693 | 52 Week High (27-Feb-2024): ₹ 825.95 | 52 Week Low (04-Jul-2023): ₹ 364.80

Rites Ltd is a mid-cap public sector enterprise with a market capitalisation of ₹16,659 Crores. It is a leading player in India’s transport consultancy and engineering sector, offering diversified services with a broad geographical reach.

The company’s profitability is strong. ROCE is 24.8% and ROE is 17.5%, indicating efficient use of capital and good returns on equity. The Price-to-Earnings (P/E) Ratio is 36.59, lower than the sector’s P/E of 40.41. This suggests the stock might be undervalued. The Earnings Per Share (EPS) is healthy, with a TTM EPS of ₹19.0 per share, showing consistent earnings.

With a debt-to-equity ratio of zero, the business is debt-free. This year’s dividend is ₹20.50, with a yield of 2.07%, offering solid shareholder returns. Promoter shareholding remained steady in the most recent quarter at 72.2%, showing promoter confidence.

Annual revenue fell by 7% last year to ₹2,538.97 Crores, indicating a decline in sales. However, the stock price rose by 81.05%, outperforming its sector by 6.73%. This significant rise shows strong market confidence and robust stock performance.

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PNC Infratech Ltd

Current Price: ₹ 488 | 52 Week High (27-May-2024): ₹ 574.80 | 52 Week Low (09-Nov-2023): ₹ 310.10

PNC Infratech is a mid-cap company with a market capitalisation of ₹12,418 Crores. It offers fixed-sum turnkey and item-rate infrastructure implementation solutions, including engineering, procurement, and construction (EPC) services.

The company’s profitability is robust. ROCE is 16.1% and ROE is 19.2%, indicating efficient use of capital and good returns on equity. The Price-to-Earnings (P/E) Ratio is 13.7, significantly lower than the sector’s P/E of 40.41, suggesting the stock might be undervalued. Earnings per Share (EPS) is growing rapidly, with a TTM EPS of ₹35.4 per share, showing consistent earnings growth.

One concern is the Debt to Equity Ratio of 1.55, which indicates that the company’s assets are primarily financed through debt. This year’s dividend is ₹0.50, with a yield of 0.12%, offering modest shareholder returns. Promoter shareholding remained steady in the most recent quarter at 56.07%.

Annual revenue rose by 8.64% last year to ₹8,731.38 Crores, indicating healthy sales growth. The stock price increased by 48.65%, underperforming its sector by 25.67%. This rise shows moderate market confidence and stock performance.

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Ircon International Ltd Engineers India Ltd

Current Price: ₹ 270 | 52 Week High (21-May-2024): ₹ 301.45 | 52 Week Low (13-Jul-2023): ₹ 79.00

The next company on the list of best infrastructure stocks in India is Ircon International. A large-cap company with a market capitalisation of ₹25,225 Crores, one of India’s top public sector construction enterprises in transportation infrastructure development. It stands out as the only Indian PSU and one of five Indian companies on the top 250 international contractors list.

The company showcases strong profitability ratios with an ROCE of 18.5% and an ROE of 16.8%. Its Price-to-Earnings (P/E) Ratio is 27.31, significantly lower than the sector P/E of 40.41, indicating potential undervaluation. The Earnings per Share (EPS) shows consistent positive growth, with a TTM EPS of ₹9.88 per share, highlighting its healthy growth trajectory.

The Debt to Equity Ratio of 0.44 is below 1, indicating that Ircon International’s assets are primarily financed through equity, reflecting financial stability. This year’s dividend is ₹3, yielding 1.13%, offering reasonable returns to shareholders. Promoter shareholding remained steady in the most recent quarter at 65.17%.

Annual revenue rose by 19.73% last year to ₹12,870.52 Crores, reflecting strong sales growth. The stock price surged by 224.65%, outperforming its sector by 150.33%, demonstrating robust market confidence and exceptional stock performance.

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Engineers India Ltd

Current Price: ₹ 248 | 52 Week High (24-May-2024): ₹ 289.90 | 52 Week Low (26-Jun-2023): ₹ 112.05

The next best company among the infrastructure stocks in India is Engineering India Ltd. It is a mid-cap company with a market capitalisation of ₹13,821 Crores. As a CPSU with majority ownership by the Government of India under the administrative control of MoPNG, it plays a crucial role in the infrastructure sector.

The company boasts robust profitability ratios with an ROCE of 22.6% and an ROE of 21.1%. Its Price-to-Earnings (P/E) Ratio is 31.09, lower than the sector P/E of 79.82, indicating potential undervaluation. The Earnings per Share (EPS) is strong and growing, with a TTM EPS of ₹7.92 per share, demonstrating consistent earnings performance.

Engineers India Ltd is debt-free with a debt-to-equity ratio of 0.00, highlighting that equity is the primary source of financing for its assets, ensuring strong financial stability. This year’s dividend is ₹3, yielding 1.21%, offering moderate returns to shareholders. Promoter shareholding remained stable in the most recent quarter at 51.32%.

Annual revenue rose marginally by 0.16% last year to ₹3,500.02 Crores, indicating stable sales performance. The stock price increased by 113.64%, slightly underperforming its sector by 3.73% over the past year. This rise reflects decent market confidence and steady stock performance.

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IRB Infrastructure Developers Ltd

Current Price: ₹ 65.7 | 52 Week High (07-Jun-2024): ₹ 78.15 | 52 Week Low (02-Aug-2023): ₹ 24.95

The final company in the discussion of best infrastructure stocks in India is IRB Infrastructure Ltd. A large-cap company with a market capitalisation of ₹39,241 Crores, is India’s largest road BOT (Build-Operate-Transfer) operator with a portfolio of 36 projects.

The company’s profitability ratios are modest with a ROCE of 9.00% and an ROE of 4.47%. Its Price-to-Earnings (P/E) Ratio is 64.77, higher than the sector P/E of 40.41, indicating potential overvaluation. The Earnings per Share (EPS) is growing but remains low, with a TTM EPS of ₹1.00 per share.

IRB Infrastructure Ltd has a debt-to-equity ratio of 1.36, indicating that its assets are primarily financed through debt, which poses a financial risk. This year’s dividend is ₹0.20, yielding 0.46%, offering modest returns to shareholders. Promoter shareholding remained stable in the most recent quarter at 34.39%.

Annual revenue rose significantly by 22.35% last year to ₹8,201.76 Crores, indicating robust sales growth. The stock price surged by 138.46%, outperforming its sector by 64.89% over the past year, demonstrating strong market confidence and exceptional stock performance.

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Summarising the Best Infrastructure Stocks in India

Hurdles in the path of the best Infrastructure Stocks in India

Infrastructure companies in India face several challenges that impact their operations and growth prospects:

Funding Constraints: One of the primary challenges is securing adequate funding for large-scale projects. Infrastructure projects often require substantial capital investment, and delays or difficulties in securing financing can hinder project execution.

Regulatory Hurdles: Infrastructure projects are subject to extensive regulatory approvals and bureaucratic processes. Delays in obtaining clearances and permits can prolong project timelines and increase costs.

Execution and Operational Risks: Infrastructure projects involve complex engineering and construction challenges. Poor project planning, delays in execution, and cost overruns can impact profitability and investor confidence.

Technological Adaptation: Incorporating new technologies and innovation in infrastructure projects is crucial for efficiency and sustainability. However, integrating new technologies requires skilled manpower and upfront investment.

Political and Policy Uncertainty: Changes in government policies, regulations, and political instability can affect infrastructure projects. Uncertainty in policy frameworks can deter private sector participation and investment.

Environmental and Social Sustainability: Infrastructure development often intersects with environmental conservation and social equity issues. Balancing economic development with environmental protection and community welfare requires careful planning and adherence to sustainability standards.

Path Ahead For India’s Infrastructure Sector

The path ahead for infrastructure stocks in India presents several opportunities and focus areas for growth:

Government Initiatives and Policies: Continued government focus on infrastructure development through initiatives like the National Infrastructure Pipeline (NIP) and various flagship programs such as Bharatmala, Sagarmala, and Smart Cities Mission will drive demand for infrastructure projects.

Private Sector Participation: There will be more investment opportunities if public-private partnerships (PPPs) are used to increase private sector engagement in infrastructure projects and regulatory frameworks are loosened.

Technological Integration: Adoption of advanced technologies such as IoT (Internet of Things), AI (Artificial Intelligence), and green technologies in infrastructure projects to enhance efficiency, reduce costs, and promote sustainability.

Focus on Renewable Energy and Sustainable Infrastructure: There is a growing focus on smart cities, sustainable infrastructure, and renewable energy initiatives to meet global climate obligations and manage environmental issues.

Skill Development and Capacity Building: Investment in skill development programs to bridge the skill gap and ensure the availability of trained manpower for executing complex infrastructure projects.

Global Collaboration: Collaborating with international partners and leveraging global best practices in infrastructure development to improve project delivery timelines and quality standards.

Let’s Wrap it Up!

Summing up our discussion on the best infrastructure stocks in India, we’ve found that many companies are rapidly expanding across the country. Government initiatives and policies play a crucial role in fostering a positive environment for these companies. Additionally, there’s a rising demand for sustainable practices, driving increased research and development, which fuels growth. Looking ahead, the infrastructure sector is poised for substantial growth, supported by government initiatives, international investments, and private equity. These efforts will help achieve the country’s economic goals.

That’s all for today’s post. Hope you get some valuable insights from here.

Happy reading!

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Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a while. The post does not consist of any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.