Which Indian Companies are Leading the Infrastructure Race?

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

To change this, the government of India has been taking various measures, infra funding being the most important one.

In last year's Union Budget, the big talking point was the government's massive infrastructure push of Rs 10 trillion. It was indeed a huge amount.

In this year's Union Budget, the market wasn't expecting a major increase in allocation. Still, the announcement of an 11.1% increase was significant. The government has signalled that even in an interim budget, it's willing to remain committed to its infra push.

With a strong government capex, it's been raining orders for companies in the manufacturing, construction, and infra ecosystem. This is why railway, defence, and green energy stocks have witnessed a sharp runup in the last one year.

With massive project wins by several companies, the sector is brimming with opportunities. The Indian infrastructure industry has come a long way. But there is still a lot of work to do.

The government's commitment to funding all kinds of infra projects, the private sector's participation, and the adoption of modern technologies, are crucial to overcome challenges and build robust and sustainable infrastructure for the nation.

In this editorial, we will look at the top 4 fundamentally strong infrastructure companies sitting on the huge order books.

#1 L&T

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

L&T was established in 1946 as a manufacturing company producing dairy and allied equipment. It then expanded into repairing ships and construction.

Today, the company is the most respected multinational conglomerate that operates in over 50 countries with unmatched capabilities in all its businesses, including construction, engineering, technology, and manufacturing.

Some of its key business sectors are infrastructure, hydrocarbon, power, defence, aerospace, finance, real estate, and information technology. But infrastructure creation is its core business. L&T is synonymous with engineering, procurement, and construction (EPC) projects.

The company ranks among the top contractors across the world. It has completed many prestigious projects, such as the Bengaluru international airport, Hyderabad metro rail, and Vishakhapatnam industrial water supply.

The company has built high-speed rail, metros, road bridges, railway bridges, dams, tunnels, ports, shipyard structures, water treatment plants, transmission lines, underground cable networks, airports, data centres, and hotels.

Investors have always considered L&T as a proxy for India's infrastructure story.

At the end of the December 2023 quarter, the company's consolidated order book stood at a record Rs 4.7 trillion (tn) of which 39% were global orders. The order book grew by 25% year-on-year (YoY) in the last quarter.

These orders were from various businesses like offshore vertical of hydrocarbon, solar EPC and power transmission, water utilities, buildings/factories, as well as the minerals and metals sectors.

The company is now expecting its order book position to reach the Rs 5-trillion mark in the first half of next financial year, i.e., at least a year ahead of its earlier estimate.

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

To know more, check out the L&T company factsheet and quarterly results.

#2 Engineers India

Established in 1965, the PSU Engineers India is a one-stop shop for project management, consultancy, and engineering services.

It caters mainly to the hydrocarbon, petrochemicals, fertilizers, and infrastructure sectors. It's one of the most prominent infrastructure stocks in the market.

The company presents a compelling growth story going forward mainly due to the Indian government's National Infrastructure Pipeline. This plan aims to invest an estimated US$ 1.4 trillion (tn) in India's infrastructure by 2025.

The pipeline includes projects like dedicated freight corridors, high-speed railways, and smart cities. These are all areas within Engineers India's expertise.

India's ambitious renewable energy targets (500 GW by 2030) and push for energy independence are opening up a plethora of new project opportunities. Engineers India is actively involved in designing and consulting for solar, wind, and hydrogen projects, capitalizing on this green wave.

The company has a strong presence in both domestic and international markets, with an engineering office in Abu Dhabi catering to the business needs in UAE/Middle-East region. This global presence allows the company to tap into diverse markets and opportunities.

Over the years, EIL has expanded beyond its core business of oil and gas to petrochemicals, green hydrogen, fertilisers, and biofuels.

In February 2024, Engineers India's order book was at a healthy Rs 80 billion (bn), with projects across diverse sectors. The orders are split between the private sector (30%) and the public sector (70%).

The company has projected an upward trend in orders over the next few years. This seems reasonable as the company's order book has increased steadily over the last two years.

Apart from green energy projects like green hydrogen and green ammonia, the company is bullish on the petrochemical sector as well. It's looking to provide project consultancy to many petrochemical and polymer companies.

To know more, check out the Engineers India company factsheet and quarterly results.

#3 Power Mech Projects

Power Mech Projects is a leading infrastructure and construction company based in Hyderabad, India. It has a global presence providing services in the power and infrastructure sectors.

Its operations include three principal business lines, erection works, operation & maintenance services, and civil works.

The company is also undertaking major railway projects including electrification, signalling, culverts, platforms, doubling of tracks, etc.

It has made an entry into the transmission and distribution space, a new venture of diversification. The company has already undertaken some major projects here.

Power Mech's internation presence is significant. It's present in Libya, Yemen, Bahrain, Kuwait, Oman, Saudi Arabia, Dubai, Bangladesh, Nigeria etc. The company is actively seeking to enter new markets, notably Africa and Southeast Asia.

The company is associated with reputed project developers and EPC contractors with international levels of quality, safety, and timelines.

Moving ahead, the company will broaden its array of products and services. Currently, it is in the process of developing several new offerings, including a cutting-edge software platform designed for power plant management.

Building on its existing engagement in renewable energy projects, Power Mech intends to amplify its focus on this sector in the upcoming years. The company is proactively investing in emerging technologies like 3D printing and robotics, poised to elevate operational efficiency and productivity.

Overall, Power Mech is well-positioned for growth in the coming years. The company has a strong track record, a diversified portfolio, and a commitment to innovation.

The company's orderbook stood at an impressive Rs 570 bn at the end of FY24. The orders are from sectors like power, mining, roads, water, railways, and industrial plants.

To know more, check out the Power Mech Projects company factsheet and quarterly results.

#4 Ircon International

Established in 1976 as a railway construction company, the PSU Ircon International is an integrated engineering and construction company. It undertakes technologically complex infrastructure projects across various sectors, including railways and highways.

The company earns its revenue from project management consultancy, engineering, procurement, and construction (EPC), build, operate and transfer (BOT) or hybrid annuity mode (HAM) projects.

The company has a strong government backing which helped the company secure several orders over the decades. In the last 50 years, the company has delivered over 400 projects in India and 130 projects across 25 countries.

The company's core focus areas include railway and highway construction, engineering, and construction of EHV substations and mass rapid transit systems (MRTS).

The company boasts a robust order book, ensuring a steady stream of projects over the next 1-2 years, including the Mumbai-Ahmedabad bullet train project.

As of December 2023, the company's order book stood at almost Rs 285 bn. While it delivers projects across all segments, the Indian Railways is its main contributor to revenue with over a 90% share.

A strong order book, and rapid development in railways infrastructure has helped Ircon International grow its revenue. Some of its clients include BHEL, NTPC, the Ministry of Transport, the government of Sri Lanka, and Bangladesh Railways.

The company is involved in mostly railways and road projects. But it plans to expand its portfolio to include renewable power projects, which can help the company achieve healthy profit margins.

Moreover, the company is also planning to build a portfolio of BOT, EPC, and Design, Built, Finance, Operate and Transfer (DBFOT) projects as well through its subsidiaries and joint ventures.

All this holds the company in good stead as India rapidly develops its railways.

To know more check out the Ircon International company fact sheet and quarterly results.

Conclusion

India is on a path to becoming a US$ 5 trillion economy. Infrastructure creation will play a major role in this achievement. By boosting infrastructure, the government aims to boost many other sectors such as cement, steel, automobile, and real estate.

This makes Infrastructure stocks a good option for long-term investors but there is a need for caution and discipline here. Before you choose any infra stock to ride this wave, first look for consistency in revenue and profit growth.

Also look for debt on the balance sheet and how the company has been managing it. Increasing debt can be a warning sign. Infra companies have time and again come under scrutiny due to concerns about their debt.

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

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...