India Roads: Too Crucial too ignore: AnandRathi Institutional Research

Mr. Lokesh Pareek(Research Analyst - Capital Goods, AnandRathi Institutional Research)

After two dismal years, the road sector is now gaining momentum. We believe that the efforts by the government are translating into visible signs of the sector making a comeback and are confident of its long-term potential. This is one sector you cannot ignore seeing that it constitutes a $1trn opportunity over the next 20 years. And the corrective measures instituted by the government are bearing fruit.

Too crucial to ignore. Because roads carry over 80% of passengers and account for almost 60% of freight, no elected government can neglect to ensure road augmentation at the earliest. The past gap, coupled with estimated immense traffic growth, we believe, renders road augmentation a burning necessity.

Clear opportunities in sight. An interlinked road network is critical to any economy, and the measures to make poor road networks far better would translate into a $1trn opportunity over the XII to XV Five-Year Plans. Of this, BOT opportunities are likely to be ~15%; for National Highways the figure would be ~30%.

Corrective measures. No effort is being spared by the Road Transport Ministry, in consultation with stakeholders, in identifying and addressing sector-specific structural issues. Measures seem to have already begun yielding results.

Financing. Project financing is not a challenge as funding (equity + debt) is still accessible for BOT operators with proven execution records and quality portfolios.

Top picks. Of the five companies that we initiate coverage on with this report, Ashoka Buildcon (Buy, TP: Rs 228) is our top pick. Besides Ashoka, we also initiate coverage on IRB Infrastructure (Buy, TP: Rs 303), MEP Infra (Buy, TP: Rs 60), Sadbhav Engineering (Hold, TP: Rs 403) and Sadbhav Infrastructure (Hold, TP: Rs 111).

Source : Equity Bulls

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