Road stocks in the fast lane as govt orders jump

On August 15, while addressing the nation from the ramparts of New Delhi’s Red Fort, Prime Minister Narendra Modi reiterated his government’s resolve to invest Rs 100 trillion into India’s infrastructure sector and transform the transportation sector. 

While governments are often notorious for making outlandish claims and devising grandiose schemes that often never fructify, it does appear that some of the promised money has indeed been flowing into the country’s roads sector. 

Lion’s share of projects

The Economic Times reports that, among the major infrastructure segments, the roads sector has received a lion’s share of the government’s largesse, with projects worth Rs 22,000 crore being awarded between January and July this year. This, the report says, was three times the figure during the corresponding period last year. 

To be sure, a direct comparison may be slightly misleading, as the country was under a nationwide lockdown between the end of March and May last year, and most, if not all, contracting had either come to a halt or had been severely curtailed. 

Moreover, since almost the entire labour force had been displaced, project execution was at a virtual standstill. 
Yet, as the report says, an uptick in contracting, together with improving execution, increasing labour availability, and timely release of payments by the government, has meant that stocks of road construction companies are witnessing an early Diwali of sorts. 

Stocks on fire

So, which companies are benefiting from this largesse?

Almost all marquee road companies including KNR Constructions, PNC Infratech, IRB Infrastructure Developers and Ashoka Buildcon could be the most significant beneficiaries of this rise in order flow as their strong financials would allow them to corner the biggest pie of the business on offer. 
Indeed, shares of IRB and Ashoka Buildcon are up 65-70% over the past year, even after paring the gains in recent weeks. Shares of PNC Infratech have almost doubled to around Rs 300 apiece from less than Rs 150 in October last year. KNR Constructions has done even better, with its shares almost tripling to race past Rs 300 apiece earlier this week before trimming the gains on profit-taking.

Roads all the way 

The share of contracts awarded to roads companies as a fraction of the total infrastructure spend in the January to July period was 29.2% as compared to 15.3% in the year ago period. 
In fact, the next two segments after roads—manufacturing and railways—come a distant second, with the government having spent Rs 16,000 crore and Rs 11,000 crore on them, respectively.  The spends on other key infrastructure sectors like mining, real estate and power equipment were even lower at Rs 8,700 crore, Rs 6,000 crore and Rs 5,000 crore, respectively. Even taken together, these three sectors could not attract as much government money as did roads.