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  • Aug 22, 2022 - India is Building. Here are 5 Stocks Benefiting from this Megatrend

India is Building. Here are 5 Stocks Benefiting from this Megatrend

Aug 22, 2022

India is Building. Here are 5 Stocks Benefiting from this Megatrend

India is one of the fastest-growing economies in the world. Despite this, it is lagging behind the rest of the world with respect to infrastructure development.

To change this, the government of India has been taking various measures.

In the latest budget, the government not only increased the funding for infrastructure, but also gave a set of guidelines for the efficient execution of projects.

With infrastructure development being the primary goal of India, we have shortlisted five stocks that can benefit from it.

#1 L&T

First on our list is Larsen and Turbo (L&T), one of the leading players in the engineering and construction sector.

The company provides engineering, procurement, and construction (EPC) solutions in India and the international market.

Some of the key business sectors for L&T are infrastructure, hydrocarbon, power, defence, and information technology.

As of 30 June 2022, its order book stands at Rs 3,634 bn. In the financial year 2022, the company bagged 1,930 orders, including domestic and international ones.

The domestic orders were mainly from hydrocarbon, infrastructure, and defence sectors. However, the share of international orders has also grown.

The company has completed many prestigious projects, such as the Bengaluru international airport, Hyderabad metro rail, and Vishakhapatnam industrial water supply.

L&T's revenue during the financial year 2022 grew 15% YoY, driven by higher momentum in project execution. Net profit jumped by 120% YoY despite an increase in raw material prices.

This was mainly because of lower interest costs resulting from debt reduction. L&T's net debt reduced to Rs 7 bn from Rs 80 bn the previous year. As a result, the debt to equity ratio reduced to 0.8 in the financial year 2022 from 1.1.

Its return on capital employed (RoCE) improved by 16.7% during the year.

Going forward, a strong order book and efficient order execution is expected drive the company's revenue growth.

To know more about L&T, checkout its factsheet and latest quarterly results.

#2 Adani Ports & Special Economic Zone

Second on our list is Adani Ports, the largest private sector port operator in India.

The Adani group company provides integrated services in the ports, logistics, and SEZ segments through a connected network of 12 ports across seven maritime states.

The company has an operating capacity of 538 million metric tonnes. It handles all kinds of cargo, including liquid, bulk, and container.

It operates five logistics parks through its subsidiaries across India with a warehouse space of 400 thousand square feet.

Adani Ports has a land bank of 15,000 hectares in Mundra, Gujarat. It is strategically placed and offers investment options for diversified industries.

With the government of India taking initiatives to boost infrastructure in the country, Adani Ports is set to ride the growth wave with its operations.

In the financial year 2022, the company completed the acquisition of the Krishnapatnam Port and partially acquired Gangavaram Port to build its logistics capacity.

Apart from this, it also acquired the Sarguja rail corridor and won a bid for a deep sea port project. The company spent around Rs 114 bn on these acquisitions, apart from an organic capex of Rs 36 bn.

A heavy capex shows Adani Ports is eyeing long-term growth in India's booming economy.

Despite these acquisitions, the company has maintained its net debt to equity ratio at 1x. However, its RoCE decreased to 10.1% in the financial year 2022 from 13.5% the previous year.

In the financial year 2022, the company's revenue grew 18.8% YoY, driven by growth in the logistics segment. However, the net profit declined 9.1% YoY due to changes in forex rates.

Going forward, the company plans to increase its cargo volumes and emerge as the world's largest private port company and India's largest integrated transport utility by 2030.

To know more about Adani Ports, checkout its factsheet and latest quarterly results.

#3 IRB Infrastructure Developers

Next on our list is IRB Infrastructure Developers, an integrated infrastructure company.

IRB Infrastructure Developers has extensive experience in road and highway construction. It is also present in multiple other sectors, including real estate, airport development, and maintenance of roads.

The company owns and manages 12,000-lane km roads across ten states. It also has a 20% share in the golden quadrilateral highway.

IRB Infrastructure Developers' primary clients are the Ministry of Road Transport and Highways (MoRTH) and the National Highway Authority of India (NHAI).

It currently operates one toll-operate-transfer (TOT) project, two build-operate-transfer (BOT) projects, and four hybrid annuity model (HAM) projects.

As of 30 June 2022, the company's total order book stood at Rs 157 bn. Of this, Rs 62 bn were operations and maintenance projects, and Rs 95 bn were construction projects.

In the financial year 2022, it won orders worth Rs 76 bn. Its revenue grew 15.8%, YoY driven by growth in toll revenues. Net profit jumped 108% YoY during the same period, driven by reduced interest costs.

Its debt to equity ratio also improved to 0.9 from 1.9 in the previous year. The RoCE improved to 21.2%.

Going forward, with government's continued focus on creating infrastructure and IRB Infra's ability to build its order book will drive its revenue growth.

To know more about IRB Infrastructure Developers, checkout its factsheet and latest quarterly results.

#4 J Kumar Infraprojects

Fourth on our list is J Kumar Infraprojects.

It is primarily engaged in the business of execution of infrastructure projects such as civil construction and irrigation projects.

The company builds roads, underground and elevated metro projects, flyovers, and bridges. Its clientele includes L&T, Delhi Metro, NHAI, and Pune Metro,

Some notable completed projects include Delhi Metro, ESIC Medical College Alwar, and Bandra-Kurla Complex-Chunabhatti flyover.

It is currently working on Pune Metro and Kalwa Bridge, Thane. It has also bagged the Navi Mumbai Metro Rail Project in November 2021.

J Kumar Infraprojects has an order book of Rs 13 bn, of which the majority is from metro rail projects as of 30 June 2022.

In the financial year 2022, the company secured new orders worth Rs 36.9 bn. The revenue grew 36.8% due to robust order execution. Net profit improved by a whopping 222.2%.

Despite Covid-19, the company reduced its debt and became a net debt-free company in the financial year 2022. Its RoCE also improved from 7.8% to 15.5% last year.

Going forward, a strong order book and India's boost to infrastructure will drive revenue and net profit growth in the medium term.

To know more about J Kumar Infraprojects, checkout its factsheet and latest quarterly results.

#5 Aegis Logistics

Last on our list is Aegis Logistics, a leading integrated logistics company.

It is engaged in the business of importing, exporting, storing, and distributing liquified petroleum gas (LPG).

The company also handles the distribution of other products such as chemicals, petroleum oils, lubricant (POL) products, and vegetable oils.

It operates through six ports in India with a total storage capacity of 1,570 thousand kilo litres (KL) for chemicals and POL. It also has a static capacity of 114,000 for LPG.

Aegis Logistics has established relationships with its clients, including BPCL, OMFC, Shell, Reliance, and HUL.

The company uses joint ventures to expand and grow its business. Through its joint venture with Itochu, a Japanese company, it sources LPG at a cheaper rate.

It has also formed a joint venture with the world's leading tank storage company, Royal Vopak, to expand its product storage to other chemicals and explore opportunities in renewable energy.

Aegis Logistics is undertaking capacity expansions at various ports to meet the growing demand for oil and gas.

In the financial year 2022, it secured an international sourcing tender to supply 800 thousand metric tons of LPG. The company also signed a 35 year contract with Shell for petroleum storage.

During the financial year 2022, Aegis Logistics' revenue grew 20.3% YoY due to growth in the liquid division. The company's net profit jumped 54.5% YoY due to the high-margin LPG retailing business.

Aegis Logistics paid off its debt during the year and is a debt-free company. Its RoCE also improved to 22%.

The company currently has a 15.5% market share in the Indian LPG market and plans to increase it to 25% in the next few years.

Going forward, new orders, capacity expansion and diversification to other products will drive the business's revenue growth.

To know more about Aegis Logistics, checkout its factsheet and latest quarterly results.

Why should you invest in this megatrend?

With India on its path to becoming a US$ 5 tn economy, infrastructure plays a major role. By boosting infrastructure, the government aims to boost many other sectors such as cement, steel, automobile, and real estate.

Hence, now is the right time to ride this growth wave by adding these companies to your watchlist.

However, it is essential to check these companies' fundamentals and valuations before investing in them. Check for a few things to ensure you choose fundamentally strong stocks for your portfolio.

First, look for consistency in revenue and profit growth. A company growing its revenue and profits consistently tends to be fundamentally strong than others.

Second, look for debt in the balance sheet and how the company has been managing it. Increasing debt can be a warning sign.

Last, check the future prospects of the company. A good order pipeline will translate into higher revenues, ultimately indicating good growth prospects.

Remember investing in the stock market can be risky. Hence it is important to proceed with caution.

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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