5 Stocks Set to Ride the Wave of Upcoming Capex Boom

In terms of growth, capex (capital expenditure) plays a crucial role by allowing a company to increase its production capacity, improve operational efficiency, and stay competitive in its industry.

For example, investing in new technology can automate processes, reduce downtime, and improve product quality. By making these investments, a company can increase its ability to produce and sell goods or services, which can lead to increased revenue and profit.

Mind you, too much capex can also put a strain on a company's finances, as it requires significant upfront costs and can take several years to generate a return on investment.

Keeping that in mind, we've scoured the market to find 5 stocks that could do well when capex comes into play.

So don't wait up...capitalize on the capex wave with the hottest stocks!

#1 PSP Projects

First on the list is PSP Projects.

There are too many foreign companies when we talk about the infrastructure sector in India. But there's one Indian company that stands tall and proud - PSP Projects.

It was founded by P.S. Patel in 2008. It is a multidisciplinary construction company that offers a wide range of services across all kinds of construction projects in India.

What makes PSP projects a strong play for the capex revival theme?

As the government expresses its thrust on infra developments and big private players like Adani and L&T also lay out huge private capex plans, PSP Projects known for its timely execution and ability to bid for high value projects, puts the company in the driver's seat.

The company recently set up a manufacturing plant for concrete and allied elements. The total cost for this plant comes to around Rs 1.1 billion (bn).

In the past few months, PSP Projects became the talk of the town as it received multiple long term orders.

It announced receipt of orders worth Rs 1.2 bn in the industrial and institutional categories, in December 2022.

It also received a letter of intent (LoI) for civil construction of core & shell of certain floors of high-rise residential towers, project - VIDA, at GIFT City, Gandhinagar. The order is worth Rs 1.2 bn from Nila Spaces.

With this, the order inflow till date for FY23 stands at Rs 19.5 bn, higher than the revenue in FY22 of Rs 17.5 bn.

In its concall, the company informed that it has a pipeline of approximately Rs 45 bn worth orders, of which 60% are from private projects and around 25% from the state of Gujarat.

Gems & Jewery Park, Mumbai	1,200
Central Vista_ MP Chambers At Delhi NCR	1,210
Private Residential Township, Delhi NCR	500
IT Park, Chennai	370
Development of Dharoi Dam	334
Industrial Project in Hazira	300
Delhi Metro MEP Package	200
One of tallest Residential in Ahmedabad	120

Data Source: Company presentation
Figures in Rs crore

In the past year, shares of PSP Projects have gained 16%. The stock currently trades near its 52-week high.

The company's business prospects remain strong backed by execution capabilities, uptick in the infra and capex cycle, and a strong balance sheet.

#2 H.G. Infra Engineering

Next on the list is H.G. Infra Engineering. The company is primarily involved in the construction of roads and highways.

India is on a massive road building spree. Did you know, the government has an ambitious target of achieving a construction rate of 60 km per day?

That's right. If and when achieved, this would be an unprecedented rate of construction. It would be among the best road construction rates in the world.

H.G. Infra is one of the companies making this happen. National Highways, Adani Road Transport, Tata Projects etc. are some of its big customers.

Over the years, the company has improved its execution capabilities, which has resulted in healthy order book and robust financials.

In fact, its profit has grown at a faster pace than revenues in the past five years.

Financial Snapshot (2018-2022)

Rs m, consolidated	2018	2019	2020	2021	2022
Revenues	13,927	20,145	22,171	26,097	37,514
Growth (%)	32%	45%	10%	18%	44%
Operating Profit	2,127	3,160	3,692	4,906	7,174
OPM (%)	15%	16%	17%	19%	19%
Net Profit	843	1,273	1,666	2,367	3,800
NPM (%)	6%	6%	8%	9%	10%
Debt to Equity (x)	0.8	0.6	0.6	0.7	0.8

Data Source: Ace Equity

As of September 2022, the company had a massive order book of Rs 108.5 bn. This is more than 3x its FY22 revenues.

It continues to receive big orders. It recently bagged an order worth Rs 4.1 bn from the Delhi Metro Rail Corporation.

In the past one year, shares of the company have gained 19%.

Interesting to note that ace investor Sunil Singhania's portfolio has over 1% stake in the company as of December 2022.

Going forward, the company's revenues from non-road segment should be tracked while its increased hybrid annuity model (HAM) projects will be the growth driver.

#3 Pitti Engineering

Third on this list is Pitti Engineering.

We recently wrote to you about railway stocks and why the investor sentiment is high in this segment on the back of announcements related to the sector in the Union Budget 2023.

Well, the government did not disappoint and presented a capex bonanza for the railways sector. Rs 2.4 trillion (tn) was allocated to railway ministry in the Union Budget.

Stocks from the railway segment were no doubt on a speedy track but they got another boost today. Pitti Engineering is one of the companies which can benefit big time from the increased capex for railways.

It manufactures value added and unique components through machining and lamination process for several end-user industries in India and international markets.

Pitti Engineering makes customised products for customers. As a result, it became the only supplier for those products which established its long term relationship with counterparties. Some of them include General Electric, Siemens, ABB India, Cummins India, among others.

In the railway segment, Pitti Engineering supplies components for most of the products that Indian Railways uses in terms of freight locomotives, electric freight locomotives, and passenger trains.

Apart from that, the company is also involved in the electric vehicle (EV) segment but that is yet to pick up pace.

In 2022, the company registered strong growth in revenues and profits on the back of an improvement in total capacity.

For financial year 2023, the company is undertaking a capex of Rs 1 bn. It has other capex plans lined up for the medium term. The company is aiming to spend Rs 2.7 bn for focusing on production capacity at its Aurangabad facility.

Once this is done, it will take up an additional capex of close to Rs 2 bn between 2024-25.

Some construction got delayed in the second quarter of 2023. Its order book also declined marginally, but still stands at Rs 8.8 bn.

In the past one year, shares of the company have gained 17%.

#4 Apcotex Industries

Fourth on this list is Apcotex Industries. The company was set up in 1980 as a division of Asian Paints. It was spun off in 1991 as a separate company.

The company is a leading producer of synthetic rubber (nitrile rubber, high styrene rubber, nitrile polyblends, and nitrile powder) and of synthetic latex (XSB latex, VP latex, Styrene Acrylics, and nitrile latex) in India.

It is also the sole producer of Nitrite rubber and high styrene rubber in India.

The company's products find applications in paper, carpet, construction, gloves, specialty chemicals, and the tyre cords industry.

What makes it an exciting play in the capex theme? Apcotex Industries has undertaken the largest capex in the company's history at Rs 2 bn for financial year 2023.

The capex is done for its medical segment, industrial gloves segment, and nitrite latex segment. It will get done towards the end of fourth quarter of 2023.

The medical glove industry itself is projected to witness a double-digit growth in the post pandemic era, and the synthetic latex is likely to substitute natural latex due to allergy issues in the latter.

A key concern could be debt, as funding for this project is split between debt and internal accruals. But so far so good as its debt to equity stands at 0.3x.

Even after this expansion, the company will have enough space to increase capacity by up to 50% in the future, with less capex.

Apcotex Industries' return ratios, dividend payout history, and positive cash flows offer comfort.

Financial Snapshot of Apcotex (2018-2022)

Rs m, standalone	2018	2019	2020	2021	2022
Revenues	5,262	6,257	4,960	5,406	9,569
Growth (%)	36%	19%	-21%	9%	77%
Operating Profit	721	770	404	751	1,477
OPM (%)	14%	12%	8%	14%	15%
Net Profit	386	466	166	442	988
NPM (%)	7%	7%	3%	8%	10%
Debt to Equity (x)	0.1	0.0	0.2	0.1	0.1

Data Source: Ace Equity

The company has also seen a decent fall in its share price. At the current price, it trades at a PE multiple of 18.7x.

Going forward, its healthy financials and capacity expansion can be the triggers for next leg of growth.

#5 Railtel Corporation of India

Last on this list is Railtel Corporation of India.

The company is one of the largest telecom infrastructure providers in the country. It is owned by the Government of India under the Ministry of Railways (MoR).

This gives it the privilege of owning the exclusive right to lay optical fibre cables and provides telecom-related services along the 60,000-route km of the Indian Railways' network.

Through this setup, it offers a telecom infrastructure that can host other telecom players at railway stations.

Railtel has been consistently profitable since 2007 and is financially self-sufficient. It enjoys the highest net profit margin among key telecom companies in India and highest operating margin among key IT/ICT companies in India.

What makes Railtel an exciting company to track from a capex perspective? It has opportunities in the capex through the railway sector, energy sector, and the defence sector. Not to mention smart cities and data centres.

As of September 2022, it has a strong order book of Rs 45 bn. Rs 20 bn from this is for railway segment while the remaining Rs 25 bn is from defence, coal, and basically non-railway segment.

Its management has guided for 20% growth across metrics.

On the financials front, the company has maintained high double digit return ratios, along with good margins, and consistent dividend payout.

In the past one year, shares of the company have gained 8%.

Going forward, the company could do well owing to its healthy orderbook.

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