“Our bottom-up analysis suggests $356 billion of projects could be awarded cumulatively in FY 22-23, led by government-funded infrastructure, private sector-funded infra, real estate, and industries,” the report said. Analysts expect the government to continue trimming subsidies to pave the way for more infrastructure Capex going forward. Subsidies have come down from 17% in the financial year 2014 to 11% targeted for the next fiscal year, meanwhile, government expenditure has increased from 14% to 23% during the same period.
Contrary to belief, BofA said that funding will not be a problem for the government. Higher fiscal deficits until 2026; government recycling capital by monetizing operational infra assets; PSUs’ un-levered balance sheets; room to expand leverage at government’s infra entities; private sector underleveraged; and DFI plans are believed to help funding visibility.
Larsen & Toubro: With exposure to diversified segments, strong execution capabilities, and a strong balance sheet, L&T is seen as a key large-cap beneficiary of the capital expenditure upcycle. “Both earnings growth & core RoEs are currently close to historical lows, providing scope for upside on improving order inflows,” BofA said. The brokerage firm has upgraded its price objective for L&T to Rs 1,780 from Rs 1,663 apiece. Currently, L&T trades at Rs 1,458 per share.
Adani Ports and SEZ: Adani Ports has announced the closure of the Dighi port acquisition, along with the acquisition of a 31.5% stake in Gangavaram port. BofA believes these acquisitions will continue for Adani Ports. “We believe markets are likely to ascribe premium valuations for this ability to grow inorganically, and hence we see room for current valuation at 21x 2-yr forward PE (at +1SD) to expand further,” they added. A price objective of Rs 865 per share has been set by BofA analysts. Current stock trades at Rs 719 apiece.
Voltas: Voltas has a 27% market share in the unitary cooling products (UCP) business. “While expectations of a harsh summer in 2021 are likely to drive UCP outperformance, we see the de-merger of the projects business as a positive with markets now likely to ascribe higher multiples to the B2C business,” the report noted. Currently, the stock is trading at Rs 1,030 per share. A price objective of Rs 1,187 apiece is forecasted.
NTPC: The company has plans to reach 32GW renewable energy (RE) capacity by 2030. The trend of shifting towards renewable energy could help the stock going forward. BofA said the company has a strong balance sheet to support its portfolio growth. The price objective for NTPC is Rs 114 per share.
Bharat Electronics: “In the absence of any large order, we expect order inflow to be flat over FY20-23E. We think margins could also normalize to sustainable levels of 19.5-20% (vs 21% in FY20) and working capital is likely to remain elevated,” BofA said. BEL, however, could see re-rating ahead owing to the Make in India initiative. Currently, the stock is trading at Rs 138 per share, while BofA sees a price objective of Rs 156 apiece.
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