(By D K Aggarwal, Chairman and MD, SMC Investments and Advisors Ltd.) With some major developments coming up, the horizon for the road sector, especially highways, is expected to change for good. The government focus on road building will continue to improve connectivity, and enhance overall competence of the economy.
As the government steps up the pace of implementation and awarding of contracts through the engineering, procurement and construction (EPC) and hybrid annuity model (HAM) routes, rather than build, operate, transfer (BOT) mode, construction of national highways hit a high 9,829 km, while 17,055 km of NH was awarded during 2017-18 compared with 8,231 km constructed in FY17.
This has helped almost all large construction firms improve order books during these years.
The total investment in constructing national highways by both the government and private investors stood at about Rs 1.5 lakh crore, out of which Rs 1 lakh crore came from budgetary allocation.
The expenditure on national highways is expected to exceed Rs 2 lakh crore in FY19. There is a revival in demand for retail credit and corporate credit, and corporate credit quality has improved in last four years.
The impetus seen in road construction is expected to continue with many projects already being tendered and waiting to be awarded. Going forward, it is expected that both award and execution of projects will be even more rapid, as the central government aims to build around 35,000 km of new highways over the next five years; 24,800 km under Bharatmala, and the rest under the existing National Highways Development Programme (NHDP) programme.
Also, as we near the election year of 2019, the government may increase public spending on public infrastructure, including roads and highways.
Undoubtedly, the swift pace of award and implementation of highway projects has resulted in swelling of order books of most road developers. The same will ensure strong topline growth for most companies. Besides, other peripheral industries such as construction equipment, steel and cement, too, should also see solid growth.
Among all infrastructure projects, road construction remains key and the most tangible sign of development. This also helps job creation. The government focus on this sector is likely to push construction, job creation and economic activity in the runup to the polls.
Stocks such as Dilip Buildcon, KNR Construction, Ashoka BuildconNSE -0.10 %, Sadbhav Infrastructure are likely to benefit from this strong focus on road construction.