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  • Jun 21, 2022 - The Top 5 Infrastructure Stocks to Add to your Watchlist

The Top 5 Infrastructure Stocks to Add to your Watchlist

Jun 21, 2022

The year 2022, has been a year of volatility. Most stocks, strong or weak, old or new, have been taken to the cleaners.

Such has been the case for people who have invested in the stock market in 2022.

But in between all the reds, there's a sector which took the different road. Which sector are we talking about?

It's none other than infrastructure.

What caused the infra sector to move up against the waves of downfall?

Infrastructure sector stocks started rallying after the Union Budget for 2022-2023 was announced. Finance Minister Nirmala Sitharaman announced the government will focus on the 'Gati Shakti' plan.

This plan aims to ease the movement of goods and people. As a part of this scheme, the Indian road network will be increased by 25,000 km in fiscal 2023, and more Vande Bharat trains will also be added.

In the budget, the government also announced a 35% increase YoY in infrastructure capex. The government has emphasised the growth of infrastructure to boost the economy.

Hence, it looks like the infrastructure sector may be a good space for investment right now and for several years to come.

Being an investor's best friend, Equitymaster brings a list of 5 infra stocks that you should add to your watchlist.

Infra and engineering stocks will usually have substantial debt, but these companies have managed their debt levels.

These stocks are results from Equitymaster's powerful stock screener.

Let's get started...

#1 ABB India

Established in 1949, ABB India is one of the most reputed names in Indian infrastructure. Its operations can be divided into four major segments: electrification, process automation, motion, and robotics.

ABB India's growth trajectory is an upward-looking one. It has generated good profits for shareholders over the years.

ABB India - Financial Snapshot

Particulars (Rs m) FY17 FY18 FY19 FY20 FY21
Total Income 92,179 109,591 83,331 59,459 71,428
Growth (%) 5% 19% -24% -29% 20%
Operating profit 8,618 10,230 6,552 3,905 7,243
Operating profit margin (%) 9% 9% 8% 7% 10%
Net profit 4,199 5,108 3,034 2,304 5,324
Net profit margin (%) 5% 5% 4% 4% 7%
Data Source: Equitymaster

Good or bad, ABB India has always rewarded its shareholders via dividends and capital appreciation. It has paid dividends continuously from year 1997 to 2022.

ABB India's financial statements for fiscal 2021 show that the company has brought its business back to pre-covid-19 levels. Thus, projecting a strong ability to recover and a rising demand for its products.

In 2022, ABB India announced its plans to expand the Gujarat factory. It aims to meet the rising demand for digital substation products and digital systems.

From 3 January to 1 June 2022, ABB India's share price saw a rise of about 12%. After which, the shares started a downtrend trend.

However, this dip in share price looks like it is only a movement in tandem with the market. It is noteworthy that the company has a very high PE ratio which can raise concerns.

To know more about the company, you can a look at its factsheet and quarterly results.

#2 Siemens

Siemens is a pioneer in infrastructure facilities, digitalisation, and electrification in India. It is one of the world's largest producers of energy-efficient and resource-saving technologies.

Siemens is a multinational conglomerate. It has its capital spread over many successful businesses in multiple countries.

Siemens' story in India has been a success story. It has seen growth in sales and profits for almost all years.

Take a look at the financial snapshot of the company.

Siemens - Financial Snapshot

Particulars (Rs m) FY17 FY18 FY19 FY20 FY21
Total Income 113,581 130,754 142,492 109,329 140,742
Growth (%) 3% 15% 9% -23% 29%
Operating profit 13,317 16,348 19,168 13,686 18,592
Operating profit margin (%) 12% 13% 13% 13% 13%
Net profit 11,366 9,012 10,994 7,686 10,904
Net profit margin (%) 10% 7% 8% 7% 8%
Data Source: Equitymaster

Siemens' future looks bright as it announced big expansion plans in 2021. It has deep pockets, excellent services, and skilled human resources.

In financial year ended September 2021 Siemens reported a profit of Rs 11.1 bn. This is higher than the profit for September 2019, which means that Siemens recovered quickly from the pandemic.

Another plus point in Siemens financials is zero debt. Siemens its financing its own capital needs for many years.

A giant old fruit-bearing tree with deep roots will stand tall against all kinds of weather. During difficult times it may shed leaves and even lose fruits, but it will never fall.

This happened with Siemens. In 2021, Siemens' share price rose by 47%, but in 2022 it barely fell by 1%.

However, one should pay attention to the PE ratio. It is higher than industry PE, which means it is expensive.

To know more about the company, you can look at its factsheet and quarterly results.

#3 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.

PSP Projects was founded by Mr 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.

PSP Projects has had a good growth graph.

PSP Projects - Financial Snapshot

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Income 7,703 10,731 15,234 12,575 17,700
Growth (%) 68% 39% 42% -17% 41%
Operating profit 1,232 1,713 2,149 1,515 2,565
Operating profit margin (%) 16% 16% 14% 12% 14%
Net profit 659 891 1,282 833 1,624
Net profit margin (%) 9% 8% 8% 7% 9%
Data Source: Equitymaster

In 2021, it won the award for the second-fastest-growing construction company, repeatedly for the third time in a row.

PSP Projects has sound financials. Its EPS and profits have been growing at a steady rate.

The business took a hit due to the pandemic. But the results of fiscal 2022 show that PSP Projects has overcome the effect of covid-19.

PSP Projects reported a profit of Rs 1.6 bn in 2022. This is 101% higher compared to the previous year. It's 26% higher compared to fiscal 2020, which means the profit is higher than the pre-pandemic period.

PSP Projects has been consistently paying dividends since 2017. The low debt-equity ratio is another feather in the company's hat.

PSP Projects' share price went up 16% in 2021. It achieved its 52-week high price of Rs 639 on 1 February 2022. However, it fell only around 1% in 2022. Thus PSP Projects' share price withstood the price fluctuations of 2022.

To know more about the company, you can look at its factsheet and quarterly results.

#4 Cummins India

In India, Cummins designs, manufactures, distributes, and services diesel engines, generators, and related components and technologies.

Established in 1962, Cummins India has shown a good growth rate in India.

Cummins - Financial Snapshot

Particulars (Rs m) FY17 FY18 FY19 FY20 FY21
Total Income 52,508 52,738 59,368 54,501 46,351
Growth (%) 8% 0% 13% -8% -15%
Operating profit 9,456 8,942 11,041 8,467 8,558
Operating profit margin (%) 18% 17% 19% 16% 18%
Net profit 6,551 6,260 6,499 5,833 5,219
Net profit margin (%) 12% 12% 11% 11% 11%
Data Source: Equitymaster

In 2022, it reported sales of Rs 64.1 bn. Profits for 2022 stood at Rs 9.3 bn. Profits have risen 47% compared to last year.

These figures are not only higher than 2021, the pandemic year, but also higher than2020. Thus, the company has not only been able to recover the business lost in the pandemic, but it has also generated new opportunities for itself.

The company has more cash compared to its debt. The debt-equity ratio is also quite low.

Cummins has been consistently paying dividends since 1997. It pays a higher dividend as compared to its peers. In 2022, Cummins India paid a final dividend of 525%, i.e. Rs 10.5 per share.

Cummins India's share price was soaring in 2021. The share price rose 62% in 2021, but the share price fell by only 2% in 2022.

However, in the past twenty days, the share price has fallen by 6%. This downfall in price looks like it is a movement in tandem with the market.

Investors should also be careful with the PE ratio. Cummins India's PE ratio is higher compared to the industry.

To know more about the company, you can look at its factsheet and quarterly results.

#5 Larsen and Toubro

Another Indian company on our list is Larsen & Toubro (L&T). Larsen and Toubro is an Indian company founded by two Danish refugees - Henning Holck-Larsen and Soren Kristian Toubro.

L&T is one of the top 5 construction companies in India. It is engaged in the business of engineering, construction, manufacturing, technology, and financial services.

If you talk engineering and infra stocks in India, L&T is the first name which comes to mind.

L&T's financial statements have been a pleasant sight to sore eyes. The sales and profit of L&T have seen a steady increase. L&T has recovered quickly from the pandemic effect.

L&T - Financial Snapshot

Particulars (Rs in m) FY17 FY18 FY19 FY20 FY21
Total Income 1,108,040 1,244,897 1,452,386 1,559,805 1,544,174
Growth (%) 9% 12% 17% 7% -1%
Operating profit 181,531 213,617 257,563 280,459 379,902
Operating profit margin (%) 16% 17% 18% 18% 25%
Net profit 68,808 84,403 102,376 108,223 129,069
Net profit margin (%) 6% 7% 7% 7% 8%
Data Source: Equitymaster

For financial year 2022, L&T reported sales of Rs 1,565.2 bn. This is 15% higher compared to last year. Profits for 2022 were Rs 102.9 bn. Thus, profits are up 120% compared to last year.

L&T has a low debt-equity ratio and a steadily growing return on equity.

L&T has been an investor's favourite stock for a long time. L&T gained 46% in 2021.

However, in 2022, L&T fell prey to the volatility of markets. Its share price fell around 23%. The fall has been very steep in June. 11% fall in twenty days is a huge fall.

However, there are no major red flags that caused this fall. It seems like the fall is a result of FIIs selling to book their profits and a movement that is in step with the market decline.

To know more about the company, you can look at its factsheet and quarterly results.

Snapshot of Top Infra Stocks from Equitymaster's Stock Screener

Take a look at the above-mentioned companies along with other important matrics.

The road ahead...

Seems like infrastructure stocks are finally feeling the heat of the stock market as they fall rapidly in June.

Rising crude oil prices and the volatile prices of other commodities have increased the input costs for infrastructure companies. This might have added insult to injury. As a result, the share price of infrastructure stocks went tumbling down.

However, it does not change the fact that the infrastructure sector has high growth potential. Especially these five stocks that offer a low debt-equity ratio.

No wonder lead smallcap analyst at Equitymaster, Richa Agarwal, calls investing in infra stocks her favourite investing theme.

Here's an excerpt of what she wrote in of the editorials:

    The good news is that the benefits of the capex cycle will not limited to the obvious names.

    It's a trigger for a virtuous cycle. The multiplier effects of this capex boost will not be limited to the frontrunners but will spill over to multiple sectors.

    And for certain companies the demand for products won't just be limited to new capex coming in a particular segment. It will be diversified across sectors and will be supported by replacement demand too.

    It's such companies long term investors should be paying attention to. More specifically, the ones where valuations are not prohibitive yet.

You can read the entire editorial here: The Top Stock in My Favourite Investing Theme of 2022.

Do note that these stocks may be expensive as indicated by their PE ratio.

Hence, an investor must carefully analyse his risk appetite and study the stock for a while before he makes any investment decision.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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