Road companies hit fast lane on government spend

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Construction equipment sector is on a roll following the massive government push on roads through projects like Bharatmala for highway construction and Pradhan Mantri Gram Sadak Yojana (PMGSY), which aims to improve rural connectivity.

The investment in road sector is expecting yearly growth of 20% over the coming years, triggering demand for construction machinery and vehicles.

“Investment cycle has started with road sector construction equipment industry to grow at a compounded annual growth rate of 20%-plus,” Srei Infrastructure Finance officials said during the company’s second quarter earnings presentation.

In August and September this year, the construction equipment industry grew 25-30% and the momentum is expected to continue for the rest of this fiscal, said Anand Sundaresan, former president of the Indian Construction Equipment Manufacturers’ Association and managing director of the Indian subsidiary of Schwing Stetter GmbH.

“The Union cabinet recently cleared Rs 7 lakh crore project to develop 83,677 kilometre of highways in five years, which includes the Bharatmala project, thus providing much-needed booster dose to the road industry,” Srei said in its presentation.

Under the Pradhan Mantri Gram Sadak Yojana, a spending of Rs 88,185 crore is envisaged by the central and state governments to construct 109,302 km of rural roads over the next three years.

In addition, 5,411 km roads worth Rs 11,725 crore will undergo upgradation and new roads in 44 districts are to be completed by 2019-20.

Rating firm Crisil estimates that India needs an expected spend of around Rs 3,000 crore per day over the next five years for building infrastructure.

All this would translate into robust incomes and profits for construction companies in roads and other sectors, many of which are listed such as Ashoka Buildcon, IRB Infrastructure, Sadbhav Engineering, PNC Infratech, among others.

“The EPC (engineering, procurement and construction) contract companies in the infrastructure space have started doing much better. They are getting contracts for projects like roads and irrigation. Srei Equipment is growing only because these companies are growing. As they win more contracts, they need more equipment and so, we are benefitting,” Srei Infra managing director Hemant Kanoria told analysts.

“The government has committed huge capital outlay in developing rail and highway networks besides launching mega affordable housing projects. Given these facts, it is absolutely essential for the earthmoving and construction equipment industry to collaborate with all stakeholders including government agencies,” Subhas Chandra Sethi, chairman of SPML Infra, a leading construction company, said during a roadshow for an industry event.

HIGHWAY TO GROWTH

  • Under PMGSY, an estimated Rs 88,185 crore is required to construct 109,302 km of rural roads over the next three years

  • In addition, 5,411 km roads worth Rs 11,725 crore will undergo upgradation, new roads in 44 districts are to be completed by 2019-20

  • All this would translate into robust incomes and profits for firms, many of which are listed such as Ashoka Buildcon, IRB Infra, Sadbhav Engineering, PNC Infratech
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