A multi-year capital expenditure upcycle, related to the one noticed involving the economic year 2003-12, is just ahead for India, stated analysts at Bank of America Securities (BofA) in a current note. The worldwide brokerage firm expects the government of India to continue rolling out reforms to push manufacturing, FDI, break government monopolies and increase funding visibility. To ride on this wave, BofA has an ‘overweight’ stance on financials, industrials, and components sectors and underweight on customer discretionary.
“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 stated. Analysts count on the government to continue trimming subsidies to pave the way for more infrastructure Capex going forward. Subsidies have come down from 17% in the economic year 2014 to 11% targeted for the next fiscal year, meanwhile, government expenditure has enhanced from 14% to 23% throughout the exact same period.
Contrary to belief, BofA stated that funding will not be a issue for the government. Higher fiscal deficits till 2026 government recycling capital by monetizing operational infra assets PSUs’ un-levered balance sheets space to expand leverage at government’s infra entities private sector underleveraged and DFI plans are believed to assist funding visibility.
Stock speak
Larsen & Toubro: With exposure to diversified segments, sturdy execution capabilities, and a sturdy balance sheet, L&T is noticed as a important significant-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 stated. The brokerage firm has upgraded its value 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 value objective of Rs 865 per share has been set by BofA analysts. Current stock trades at Rs 719 apiece.
Voltas: Voltas has a 27% industry share in the unitary cooling goods (UCP) small 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 value objective of Rs 1,187 apiece is forecasted.
NTPC: The corporation has plans to attain 32GW renewable power (RE) capacity by 2030. The trend of shifting towards renewable power could assist the stock going forward. BofA stated the corporation has a sturdy balance sheet to assistance its portfolio development. The value 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 stated. BEL, having said that, could see re-rating ahead owing to the Make in India initiative. Currently, the stock is trading at Rs 138 per share, whilst BofA sees a value objective of Rs 156 apiece.
(The stock suggestions in this story are by the respective investigation and brokerage firms. TheSpuzz Online does not bear any duty for their investment tips. Please seek the advice of your investment advisor just before investing.)