Road to become rich! These five construction stocks can give 5% to 56% return on your money
Analysts at IDBI Capital states while giving positive outlook that, earnings progression of companies will remain robust despite several near term headwinds like ensuing elections and liquidity crunch.
The beginning of Monday’s trading session was not positive, as investors continued to remove their money from midcap, smallcaps, large caps and major sectors like auto, banking, FMCG, energy, consumer durables and IT. Both Sensex and Nifty 50 have given away over 400 and 100 points, respectively. In this situation, it is of utmost important to chose your stock investment wisely. As nobody likes to make a bad decision and not gain any money on equities. Having an appetite for stocks is a gamble in its own, but staying focused with good and appealing stocks in long-term is risk worth taking for. Interestingly, road construction stocks are seen as money making magnets ahead. Analysts at IDBI Capital state while giving positive outlook that, earnings progression of companies will remain robust despite several near term headwinds like ensuing elections and liquidity crunch.
Mangesh Bhadang, analysts at IDBI Capital said, “Construction sector especially road construction is still an evolving sector in India. Globally, private participation in construction activity is high and various financial models have been evolved for asset ownership. In India, private participation in government projects started only over the last decade.”
Bhadang added, “We believe that after learning invaluable lessons over the years, the authorities have been able to wither out various flaws in the models and systems used to award and construct road projects. Going forward, we expect the volatility in awarding activity to reduce and execution to pick up which will benefit most private players. As a result of earnings volatility, we believe that investing in construction companies is more like a steeplechase than a smooth run.”
According to IDBI Capital these 5 construction stocks can become your top picks for investment:
Ashoka Buildcon – BUY – TP – Rs175 (Upside – 56%): Ashoka Buildcon Ltd (ASBL) is well poised to deliver strong revenue growth of 31.3% over the next three years against meager growth of 7.5% reported over the past three years. Current order book of Rs95.4bn as of Q3FY19, offers greater revenue visibility with book to bill ratio of 3.0x on trailing twelve month basis.
Dilip Buildcon – BUY - TP – Rs692 (Upside – 54%): Dilip Buildcon Ltd (DBL) stock is down 73% from its 52 week high of Rs1,248 on May2018. Post this fall, the stock is available at extremely attractive valuations of 5x FY21 EPS and in our opinion factoring in an extremely pessimistic scenario. Over the past 3 years, DBL has reported revenue/PAT CAGR of 43% and 61% and it also boasts of extremely superior ROE and ROCE of 28% and 31% for FY18.
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KNR Constructions – HOLD – TP Rs218 (Upside – 5%): KNR has one of the best operating and liquidity parameters in the road construction space. Over the past five years, KNR’s revenue and PAT has grown at CAGR of 41% and 73.5% respectively. However, earnings growth going forward is missing as we expect PAT CAGR of -8.3% for KNR over FY18-21 on the back of high base of FY18 in terms of margins and increasing tax incidence going forward.
PNC Infratech – BUY – TP Rs183 (Upside – 34%): Like PNC infratech (PNC) on various parameters including higher revenue growth, good balance sheet, large order book and healthy credit rating. The company has delivered stellar growth over the last 3 quarters and is expected to continue with the same rate in the medium term given its order book.
Sadbhav Engineering – BUY – TP Rs220 (Upside – 35%): Sadbhav Engineering (SADE) is attractively valued after adjusting for the SIPL stake. What works for SADE is the long track record of the promoters in the construction industry, capability in timely execution of large sized road projects and healthy and diversified order book. So despite weak balance sheet and slower growth, we expect the stock todo well.
Hence, lets build your own road for becoming rich, with these construction stocks!