4 infra stocks to buy: Prefer NCC, PNC Infratech, HG Infra Engineering & PSP Projects, says Antique

Antique Stock Broking in its fresh report on infrastructure sector said EPC (engineering, procurement, and construction) stocks are trading at benign valuations despite outperforming the BSE500 index in the past couple of years by a huge margin.

The domestic brokerage has initiated coverage on PNC Infratech Ltd, HG Infra Engineering Ltd and PSP Projects Ltd with ‘Buy’ ratings. Antique has NCC Ltd among its preferred stock picks. It, meanwhile, suggested a ‘Hold’ on Ahluwalia Contracts Ltd.

Antique said it likes PNC Infratech as order inflow is picking up and margin is stabilizing for the EPC player. It likes HG Infra due to its net cash balance sheet and stable Ebitda margin. The brokerage prefers PSP Projects due to its diversifying order book, other than road. While the brokerage likes Ahluwalia Contracts due to strong execution, valuations are no reasonable, it said.

EPC construction stocks have outperformed BSE 500 in the last one, three and five years by 29 per cent, 142 per cent and 215 per cent, respectively. Despite the outperformance, EPC stocks (excluding L&T) still trade at 25 per cent discount to the BSE 500 PE valuation of 22 times two-year forward EPS, Antique said.

“In the road sector, government-led capex (which has driven HAM, EPC) could moderate but private capex (led by BOT) should increase FY25E onwards. Under the Bharatmala scheme, an opportunity of Rs 2.4 lakh crore is yet to be awarded “EPC contractors have diversified to sector such as the railway/ solar/ water with an annual opportunity of Rs 1 lakh crore/ Rs 15,000 crore/ Rs 70,100 crore. We expect order book build up to be gradual in FY25E and EPS upgrade,” Antique Stock Broking said.

The last 12 months have seen a downgrade in FY25 and 26E EPS estimates of road contractors, but the ones with a diversified order book have seen an EPS upgrade. Antique Stock Broking expects a build up in order book for road contractors and EPS upgrade cycle to commence post that.

PNC Infrastructure Ltd

PNC Infratech (PNCL) is engaged in executing projects across varied formats, including EPC (Design-Build) and BOT-Annuity projects across sectors> Antique vales PNC Infratech’s standalone business on a PE of 18 times 1HFY27E EPS and investments are valued at book value to arrive at a target price of Rs 633.

“PNCL’s key positives are its strong balance sheet (net cash of Rs 330 crore as of FY24), execution history in various capex oriented sectors (82 per cent order book from the road/canal sector and remaining from water supply), and stable Ebitda margin (at 12-13 per cent). Key catalyst would be pick-up in road sector ordering,” Antique said.

NCC Ltd
Antique Stock Broking said NCC is already L1 in orders worth Rs 8,500 crore, saying the company has a bid pipeline of Rs 2 lakh crore. NCC has a diversified order book with 39 per cent from buildings and 21 per cent from the electrical T&D segment. Antique finds the stock worth Rs 400 per share, valuing it at 18 times 1HFY27E EPS.

“We still find the stock reasonable given the all-round performance in execution and expected pick-up in ordering. Key catalyst for the stock is order inflow, order book at Rs 526 bn (+2x TTM revenue) continue to provide revenue visibility, “it said.

PSP Projects Ltd
This stock has recently taken a beating due to concerns over pending dues from Surat Diamond Bourse (SDB) and the lower margin from the UP hospital order. Antique Stock Broking said dues with respect to SDB is settled with no impact on PSP’s financials and the UP hospital order should be wrapped up by 1HFY25. Post the successful conclusion of QIP in April, PSP has created a war chest to bid for projects, the domestic brokerage said.

“The company is amongst a few that has achieved its FY24 order inflow guidance and we see execution improving. We initiate coverage on the stock with BUY rating and a target price of Rs
876 (valued at 16x 1HFY27E EPS),” it said.

HG Infra Engineering Ltd
HG Infra Engineering company holds expertise in providing EPC services on turnkey basis in roads. It has now diversified into other infrastructure sectors such as railway, metro, solar, etc. Antique suggested a target price of Rs 1,888 on the stock, valuing its construction business at 18 times 1HFY27E EPS and valued investments at book value.

“The company’s TAM has increased post its foray into the railway, solar sectors for EPC work. Its 1QFY25 order book of INR 156 bn should translate into a per annum revenue increase of 17-18 per cent over FY24-27E. HGIEL’s revenue growth should be better than peers that have guided for flattish to low doubledigit revenue growth in FY25E,” Antique said.