Q3FY23 Infrastructure: Q4 order wins to be keenly watched

21 Feb 2023 , 12:29 PM

Q3FY23 saw strong execution for Ashoka and HG as they benefitted from steady execution of large under-execution order book (OB). Growth was relatively sluggish for others. Margins improved for all led by stable RM costs, but Ashoka saw impact from lower margin OB. Q4 is seasonally strong, and visibility for FY24 is good for all baring GR. However, large targeted order wins (primarily in Highways) would be keenly watched amid continued competition.

Mixed revenue growth trends: 

Revenue growth for majority of construction names under analysts of IIFL Capital Services coverage was on track for the under execution order book, barring some impact from extended monsoons in certain regions. Ashoka Buildcon and HG Infra posted strong upticks while KNR, and GR Infra posted relatively weaker growth given the size of order book for GR or issues in irrigation projects for KNR.

Margins improving for all but Ashoka: 

Relatively stable RM prices combined with better execution QoQ, have helped support the uptick in Ebitda margins for all, except for Ashoka Buildcon. While RM prices have started to re-strengthen, management guided to margins remaining stable or having slight upside as well. Ashoka Buildcon highlighted margin impact from orders won amid high competition and the impact from orders won as a JV to gain pre-qualifications.

Feb-Mar ordering and inflows, now all the more critical: 

While road awards picked up in Dec-Jan (MoRTH awards up 22% during 10MFY23 vs 2% in 8MFY23), we are yet to see meaningful wins for listed players baring DBL and ASBL. Highway awards in Feb/Mar would be critical to meet individual company targets for fresh inflows (GRRs150bn, PNC – Rs100bn, HG Infra – Rs30-40bn, KNRC – Rs40-50bn).

Analysts at IIFL Capital Services continue to like PNC, HG Infra and KNRC among road contractors and Power Mech and NCC as general contractors.