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Is future of infra bright?
Wed, 19 Aug Pre-Open

The growth in sales of commercial vehicles is one of the key indicators of economic development of the country. And there's good news on this front. Overall CV sales grew by more than 8% in the month of July on a YoY basis and have thus stuck to their growth path. Will this increase also boost the toll collection?

The reason we ask this question is because infrastructure companies have faced a prolonged depression with negligible traffic growth. Increase in traffic depends heavily on the macro economic factors such as the Index of Industrial Production (IIP). The IIP numbers had not been encouraging in the previous fiscal year. Wholesale price index (WPI), another indicator, has also been negative since the last eight months. This has constrained the infrastructure companies to increase the toll rates.

The 'Land Acquisition' bill, which will play a key role in the development of the infrastructure companies, is also facing hurdles and has been stuck in the Parliament. The opposition is in no mood to clear the same, terming it as 'Anti Farmer'.

However the sales figures of CVs and the recent developments give reasons for hope. As reported by the 'Economic Times' the highway connecting industrial hub in Pune to Ahmedabad has shown robust double digit growth in terms of toll collection. The company which runs a major part of the stretch has stated that the commercial vehicle traffic has increased towards the Gujarat end. The company further stated that the traffic growth is a big comforting factor as the increase in volumes is making up for the muted increase in the toll tarrif.

These companies are pinning their hopes for a recovery on rising truck sales, higher government expenditure and increased orders for capital goods. Government is also looking to award 10,000 kms of highways in the current fiscal as it tries to meet the construction target of 30km of roads per day during the next two years.

Moving forward, the IIP numbers and the capital expenditure in the road sector will determine the success of infrastructure companies. Meanwhile investors need to ensure that their selection of stocks in a depressed sector like infrastructure is based on not just the companies' growth prospects but its historical track record.

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Mar 16, 2018 (Close)