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Investors can look at infrastructure sector for long term wealth creation; here’s why!

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The Q3FY22 witnessed better execution for the infrastructure sector, leading to higher revenue, better operating profit, and PAT. For 9MFY22, order inflows remained muted but expected to pick up from Q4FY22 onwards.

Q4FY22 is expected to be better YoY owing to faster execution of projects, lockdown relaxations, better availability of workforce, and urgency to achieve the year-end target.

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Uttam Kumar Srimal, Senior Research Analyst, Axis Securities summarizes December quarter numbers and the outlook for the infrastructure sector in 2022:

Indian road network spans over 6.21 mn km. However, highways and expressways together constitute only 5 per cent of the total road network in India, indicating the presence of significant growth headroom.

The NHAI (National Highways Authority Of India) and MORTH (Ministry of Road Transport and Highways) have set ambitious targets for road construction through Bharatmala and Sagarmala Pariyojana, which will aid in the overall development of the sector.
 
Highway construction in India has grown at a CAGR of 17% over the last five years till FY21 and is expected to grow at a similar pace over the next five years despite obstacles posed by the pandemic.

National Highways (NHs) constitute ~2% of the total road network covering 1.36 Lakh KM and carry about a total of 40% of the road traffic of India.

The creation and operation of quality road infrastructure continue to be important for enabling the overall growth and development of the Indian economy in a sustained manner.
 
The road sector will be the largest beneficiary for the National Infrastructure Pipeline (NIP) with an expected investment of Rs 111 Trillion (Tn) over 2020-25, and projects worth Rs 19.6 Tn have been identified (19% for the sector).
 
Budget 2022-23 increased the capital expenditures by 35% to Rs 7.5 lakh crore to stimulate the overall infrastructure development of the country.

The government’s infra push and increase in CAPEX will boost the sector. With the government focusing on increasing road CAPEX, we expect the National Highways Authority of India (NHAI) to support larger projects via the Hybrid Annuity Mode (HAM), as it causes less financial stress on the government.

Along with the increasing govt CAPEX, private CAPEX is also coming back gradually, which will further bolster the overall growth of the sector.
 
“Gati Shakti National Master Plan” is aimed at improving multi-modal connectivity as well as last-mile connectivity across India.

As part of the Gati Shakti NMP, MoRTH plans to develop a total of 22 Greenfield Expressways, 23 major infrastructure projects, other highway projects, and 35 Multi-Modal Logistics Parks (MMLPs), as part of the Ministry’s Bharatmala Pariyojana, along with other schemes. “Gati Shakti” is a digital platform, which will bring 16 ministries, including roadways and railways together, for integrated planning as well as the coordinated implementation of infra connectivity projects, industrial clusters, and economic nodes.
 
Under the National Monetization Pipeline (NMP), the central government has set a target to garner Rs 1,60,000 crore by monetizing roads assets over the NMP period FY2022-25.

According to CRISIL, the NMP alone can address 15-18 percent of NHAI’s funding requirement for the next two financial years and help maintain the rapid pace of infrastructure development.

The aggregate length of assets considered for monetization under NMP in the road sector over FY 2022 to 2025 is estimated to be 26,700 KM, constituting 22% of the entire National Highway.
 
The Central Government is determined to prioritize infrastructure development, and the country is bound to witness massive infrastructure growth.

Unveiling Gati Shakti Master Plan, asset monetization exercise, and National Infrastructure Pipeline will enable authorities to achieve larger objectives of faster execution and better cost control.

All these augur well for road infrastructure companies moving ahead. We believe a large number of projects will get awarded by NHAI, in FY 23, resulting in a robust order book for companies.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)



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