Infrastructure: A Mammoth Opportunity

Under invested infrastructure space poses a huge opportunity



In India, roads, highways and railways are the fastest-growing infrastructure segments. Power transmission, roads and renewables (mostly solar), which constitute 28 per cent of the order inflow, remain the only bright spots in terms of both ordering and execution, and are likely to lead the capex revival.

Pointing the infrastructure sectors capacity to attract equity investment, of the $106tn of institutional capital available, only 1.6 per cent is directed towards infrastructure. There is no shortage of private capital but the key is to mobilise this into effective infrastructure investments. Appetite for infrastructure is increasing. In a 2017 poll of 186 institutional investors, 90 per cent planned to increase their investment allocation to this space vs. 65 per cent in 2016, implying a 25 per cent year-on-year increase.

In construction spending, McKinsey says the real estate sector accounts for 62 per cent of spending, followed by civil infrastructure—transportation, pow-er, water, and telecoms—at  25 per cent and industrial construction, including mining, at 13 per cent.

In the infrastructure space, rail is forecast to need $10tn of investments between now and 2040. The sector is followed by telecoms ($7.8tn), water ($5.7tn), airports ($2.1tn) and ports ($1.7tn).

Why is this important

India is expected to be the fastest-growing construction market in the world, adding $1tn by 2030 and growing twice as fast as China over 2014-20. India can overtake Japan by 2030 to become No. 3 largest global construction market.

How will the stocks be impacted

This mammoth opportunity is expected to be bagged by the leading infra players in India:

Dilip Buildcon (CMP Rs. 1017, M Cap Rs. 13,915 Cr, P/E 16.4x FY20E).

NBCC (CMP Rs. 93.8, M Cap Rs. 16,884 Cr, P/E 18.8x FY20E).

Godrej Properties (CMP Rs. 727, M Cap Rs. 15,750 Cr, P/E 73x FY20E).

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