2 Construction Sector Stocks To Buy For Potential Upside Of Upto To 29%: IDBI Capital

Ashoka Buildcon: Buy for a target price of Rs. 135

IDBI Capital maintains its ‘Buy’ rating on the scrip of Ashoka Buildcon for a target price of Rs. 135 while the stock last closed the trading session at a price of Rs. 104.55, implying potential investors in the stock can make decent gains of 29%.

• Q2FY22 Snapshot: The construction and contracting firm reported Q2FY22 revenue at Rs.9 billion, +5% YoY / -9% QoQ. The decline in revenue sequentially is attributed to delayed initiated of the projects owing to heavy monsoon. EBITDA margin came in at 11.5 percent, while EBITDA at Rs. 1 billion during the review period saw a decline both QoQ and YoY. Profit after tax has been reported at Rs. 0.9bn (-9% YoY / -6% QoQ). The company has guided for EBITDA margin of 12-12.5% and revenue growth of 20% YoY for FY22E.

• Order inflow robust: “H1FY22 Order book at Rs120bn (equals 3x TTM Revenue) with Roads at 61%, power T&D 16%, EPC building at 16% and Railway at

7%”, says the report. During the review period, the company bagged orders worth Rs 18.7 billion. YTDFY22 total order inflow stood at Rs. 33.5 billion.

• Trigger for future stock performance: “Catalyst for stock performance is conclusion of ACL asset sale,

execution momentum and orders win. ACL stake sale is key event to watch and will remove overhang on stock performance and provide CF for future growth to ASBL.Stock at 5x FY24E EPS is trading at -1 STD of its historical average”, adds the brokerage report.

PNC Infratech: Buy for a target price of Rs. 406

Brokerage firm has retained its previous ‘Buy’ call on the scrip of PNC Infratech for the target price of Rs. 406. This means potential investors in the stock can gain returns to the tune of 27.5% considering the stock’s current price of Rs. 318.35.

• Q2FY22 snapshot: The company’s revenue jumped by 53% YoY at Rs.16 billion. EBITDA was up 56% at Rs2.2bn with EBITDA margin of 13.7% vs 13.5% YoY. Q2FY22 PAT stood at Rs1.3bn (+95% YoY / +45% QoQ). Increase in PAT is on the back of lower tax rate at 26% versus 36%.

The company has guided for revenue growth of 20-25% with EBITDA margin of approximately 13.5-13.75%.

• Nearly 3/4th of the company’s order book is accounted by the Road sector: “H1FY22 Order book at Rs132bn (equals 2x TTM Revenue) comprises of roads at 72% and water and Irrigation projects at 28%. Q2FY22 order inflow stood at Rs27bn”, mentions the report. The company focuses to realize an order inflow of Rs. 80 billion in FY22 (HAM: EPC at 50:50). Further ahead, the company is planning to make a bid for NHAI projects amounting to Rs. 250 billion and also sees opportunities under the Jal Jeevan Mission.

The company maintains ‘BUY’ rating, while the stock trades closer to its historical average at 12x, 2 years forward EPS. “PNCL remains our top pick in the construction with order book visibility, lean balance sheet for the growth and key beneficiary of capital expenditure in road construction in India”, adds the brokerage.

Disclaimer:

The above stocks have been picked from the brokerage report of IDBI Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.