It could be a big fault at this point in time to force into some of the low quality infrastructure stocks, which in excess of the hope could be up because of the trader’s interest. Most of the infrastructure companies continue to face serious subjects together in terms of earnings & on the balance sheet.
Though, there is ray of hope that in the coming months the sector could actually revive backed by expectations of stable government after the elections.
In this background, here are 4 stocks which are comparatively secure given their balance sheet strength & business model barring having good earnings visibility.
VA Tech Wabag
Inside the construction & infrastructure space, Va Tech Wabag (Wabag) has emerged as promising company given its exposure to the water treatment space with is comparatively insulated from a slowdown.
Besides, its exposure to the international markets, especially in the developing world where the water treatment, sanitations related projects funded by the international funding agencies like World Bank & others continues to flux.
That different, the company rely less on the debt and continues to generate good operating cash without much requirement for the capex for the growth. Thankfully the business prospects have been improving as in the first 9 months end December 2013, the company has grabbed orders of worth Rs 3048 cr as against its supra pilotage of about Rs 2700 cr for the full year.
With an annual sales turnover of Rs 1618 cr, the company’s order book is nearly Rs 6000 cr or 3.7 times which is good sufficient to provide the revenue visibility for the next 3 years.
Larsen & Toubro
Larsen & Toubro (L&T) is safe bet allowing for its leadership in the sector, balance sheet strength, diversification in conditions of geographies & segments and strong order book (2.2 time FY13 consolidated revenues). On the growth, experts consider that FY15 should better for given the expected revival in the earnings & order book for the company.
Also, apart from the gains that could come in between of revival in the sector the company is expected to do well because of the restructuring of some of its businesses & subsidiaries, a marginal gains on the margins front & possible monetisation of stake in IDPL & Dharma Port.
“Post a 50 per cent stock up move, we consider there is so far quite a lot of steam left & we say buy. L&T looks set to grow sales 15% over FY14E-16E with stable margins. Also, domestic capex should resilience in soon FY16 & we expect L&T will emerge stronger from latest Indian economic deceleration & outmatch peers when economy accelerates. Also, if the domestic economic resilience takes time, L&T has the ability to pick up international orders” said Venkatesh Balasubramaniam who tracks the company at Citi Research.
IRB Infrastructure Developers
There are doubts if the road sector will revive in the near-term & work will prompt. But whenever the sector revitalizes the companies like IRB Infrastructure is well placed to take the advantages of the growth considering its capabilities & balance sheet strength. Besides, IRB is does not have major balance sheet issues given the FY13 debt to equity ratio of 1.13 times & interest coverage ratio of 2.35 times.
That Different, the company is sitting on huge operational BOT road assets which generate enough cash flows, which agree to the company to remain profitable & face industry downturn. At Rs 100, stock is currently trading at 7 times & offering a dividend yield of nearly 5 per cent.
Engineers India
Given the exposure to the hydrocarbon sector, specifically in the public sector projects, the company is able to maintain high sales of 27% & annually and on an average generated cash of about Rs 400 cr from the operations over the last 5 years.
Importantly, its business does not require much capex or cash to be deployed in the business because of which the company is almost debt free and generate strong return on equity of about 30% besides rewarding its shareholders with the generous dividends.
Currently, the stock offers almost 4% dividend yield. That a different, the scrip currently trades at 11 times, which is proper given the growth & return ratios. In conditions of growth, Engineers India is well placed to take the advantage of future capex in hydrocarbon sector. The order book at Rs 3,800 cr, or 1.5 time its FY13 sales, provides good revenue & earnings visibility in the medium- period.
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