Infrastructure Stocks Among The Top Analysts Bets For 2020
Having faced a rout in 2019, infrastructure stocks are among analysts’ top bets for the upcoming year.
In a pool of securities tracked by at least 10 analysts, four of the top five stocks expected to return best gains in the next 12 months are infrastructure companies, according to Bloomberg data. IRB Infrastructure Developers Ltd., Capacite Infraprojects Ltd., NCC Ltd. and Ashoka Buildcon Ltd. are expected to surge 73-89 percent in 2020.
The optimism comes after shares of infrastructure developers tumbled in 2019, recording their worst drop in six years, because of lack of fresh orders from the government in the run-up to elections followed by an extended monsoon.
The only non-infrastructure stock to feature in the top five is Healthcare Global Enterprises Ltd. Analysts covering the stock expect an upside of 62 percent in the new year.
Here are analysts’ best bets for 2020:
- Stocks tracked by at least 10 analysts.
- Five stocks with the highest return potential.
The end of the agreement to operate the Mumbai-Pune expressway that contributed nearly 38 percent to its total revenue, lack of projects awarded by the National Highways Authority of India under build-operate-transfer model and two projects awaiting clearances weighed on the road developer in 2019.
IRB’s two hybrid annuity model (HAM) projects are yet to receive appointed date—the date on which a work starts—because of land acquisition delays. The estimated value of these two projects is close to Rs 2,800 crore, 25 percent of the order book backlog.
Analysts, however, expect the stock to gain around 90 percent over the next 12 months on the back of an investment by the Government of Singapore Investment Corp that will help it deleverage. IRB will transfer nine BOT assets into a private infrastructure investment trust with 51 percent ownership and GIC will own the rest after infusing Rs 4,400 crore. The deal will help the company pare debt.
The company is also hoping to bid for 19 upcoming BOT projects worth Rs 30,000 crore.
Muted financial performance in the first half of financial year 2019-20 because of elections and an extended monsoon weighed on the stock. Reports of tax raids conducted by the income tax department for suspicious transactions, including alleged purchases from dubious entities, price manipulation and cash deposits during demonetisation period also turned investors anxious in 2019.
The engineering, procurement, and construction firm’s order book worth Rs 11,000 crore is more than six times its revenue for last 12 months. Its cash flow-focused growth strategy and a strong balance sheet have turned analysts bullish on the stock.
The construction firm had earlier suspended orders worth Rs 350 crore, largely from Ahuja Constructions and Radius Developers, due to uncertainty regarding the clients’ ability to pay, according to the company’s post-earnings conference call. Its net debt stood at Rs 130 crore—only 0.2 times its net worth—at the end of September quarter.
In 2019, shares of NCC fell due to the slowdown in order accretion and execution on account of the general election, extended monsoon and the newly elected Andhra Pradesh government terminating or serving stop-work notices to several contractors. The state’s projects contribute a large part of its order book.
Analysts, however, remain bullish on the stock due to its declining debt, expected resumption of stuck orders in Andhra Pradesh and a pick-up in new order inflow.
The company’s debt has declined due to better collection of receivables for orders. It also expects its debt to further reduce to Rs 1,800-1,900 crore by the end of this fiscal from Rs 2,290 crore as of Sept. 30.
Analysts are also expecting an inflow of Rs 400-500 crore from a favourable Sembcorp settlement by March 2020, which will help the company to further reduce its debt.
A cut in annual revenue growth guidance and an overhang due to the exit by SBI Macquarie Infrastructure Fund dragged down shares of Ashoka Buildcon in 2019.
The road developer had lowered its revenue growth guidance for financial year 2019-20 to 20-25 percent from 25-30 percent due to monsoon disruptions and land acquisition issues.
SBI Macquarie Infrastructure Fund is looking to sell its 39 percent stake in Ashoka Buildcon’s subsidiary—Ashoka Concessions Ltd.
Analysts, however, expect the stock to perform well as the company has received the appointed date for all its HAM projects, which is expected to drive better execution from the fourth quarter of the ongoing fiscal. The company’s standalone debt declined by Rs 260 crore to Rs 460 crore as of Sept. 30 owing to lower working capital loans.
Analysts covering the stock estimate a 62 percent upside over next year on the back of expected debt reduction in financial year 2020-21. Lower capital expenditure and rising occupancy levels are expected to improve the cancer care hospital chain owner’s return ratios and operating margins.
(The reasons for analysts’ optimism about these companies have been compiled from brokerage notes of HDFC Securities, Antique Stock Broking, Elara Capital, Anand Rathi, Citi Research, Kotak Securities, among others.)
Watch | Infra Stocks Among Top Analyst Picks For 2020