4 Stocks To Buy From The Engineering, Capital Goods And Infra Space

Updated: Saturday, November 13, 2021, 8:33 [IST]

It was another week of volatility for the markets. According to Dr. Joseph Thomas, Head of Research - Emkay Wealth Management, the earnings season has been quite satisfactory, but the likelihood of pressure on margins due to inflation, high commodity prices, labour shortages etc. has also been subjects of discussions in the last couple of weeks. While the markets may ultimately trend towards the path guided by fundamentals, the likelihood of enhanced volatility kindled by external factors may continue to be a feature of the markets in the coming weeks too."

Emkay Global has recently come-up with its report on Engineering, Capital Goods and Infra Space. It has picked 4 stocks to "buy" from the sector.

Tendering Activity Sees 12% YoY Growth, Year To Date

Delivering buoyant growth, tendering activity for Year To Date FY22 has now surpassed the levels achieved in the last three years (Year To Date FY19/20/21), led by healthy growth in Roads, Power Distribution and Water Supply. Railways, Real Estate and Irrigation are yet to gain pre-Covid momentum, an Emkay Global report has said.

For Year To Date FY22, overall tendering has achieved 12% yoy growth and a 35% 2-year CAGR. Oct'21 tenders saw healthy growth in Roads, Railways, Irrigation and Mining. Recently, a request for Proposal (RFP) for a Rs 181 bn project (20% of Oct'21 tenders) for Advanced Chemistry Cell (ACC) (under PLI) was released.

Stocks picks from the engineering, capital goods and infra space

Emkay Global's top picks in the sector are L&T (target price Rs2,200), KPTL (target price Rs 555), HG Infra (target price Rs 800), and KEC (target price Rs 530), considering their superior execution capabilities, existing order backlog, and relative valuations.

"Siemens (Under Review) and JMC Projects (Not Rated) saw strong order inflows. Siemens had an inflow of Rs 43bn (Jun'21) vs. the Rs 30 bn run rate, increasing the order book to an all-time high of Rs143 bn as of June'21. JMC received Rs79.5 bn in inflows during H1FY22, up 43% YoY, leading to a peak order book of Rs 187 bn," the brokerage has said.

Awarding activity

"Although YTDFY22 awarding activity has crossed YTDFY20/21 levels, delivering 10% yoy and a 20% 2-year CAGR, it still remains 40% below FY19 levels (Rs700bn).

Growth continues to be driven by Roads, Water Supply and Power Equipment. Despite some lag in awarding activity, a solid pipeline of investments and the economic recovery make us optimistic about a rebound in awards in the upcoming months," Emkay Global has said in its report.

According to the report, excluding roads, the 2-year CAGR dropped to 7%, clearly highlighting traction in building the country's road network, underpinned by the government's focus on accelerating infrastructure-led growth.

"Large awards are characterized by projects in Roads, Water Supply and Mining. The recently notified amended minerals concession rules regarding the sale and transfer of mines may provide impetus to the mining industry," the brokerage has said.

Disclaimer

The above stocks are picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.