It’s not all that gloomy for well-run highway builders

ET Intelligence Group: Despite considerable order books that point to high visibility of revenues in the next 3-4 years, road and construction company stocks have fallen in the range of 10-50 per cent in the year.

The reason is that the Street has been gauging the execution of order book and is wary of companies’ ability to secure funding to execute and bid for new projects.

An analysis of revenue growth of key construction and roads companies in the last two years and their ability to deleverage their balance sheets in the past three years suggests a less gloomy picture.


A few construction and roads companies are placed well in terms of execution of order book and deleveraging of balance sheet. These companies are KNR Constructions, PNC Infratech, Dilip Buildcon, and NCC.

A common thread which runs through the financial performance of these companies is the linear growth in their revenues for the past eight quarters ending September.

Bloomberg data showed these companies have had steady revenue growth year-on-year basis in the past eight quarters suggesting increasing execution of their order books.

Various estimates suggest these companies have an order book to bill ratio close to 4, indicating high visibility of revenues for at least the next three years. Interestingly, as these companies have been able to reduce debt, they would be in a better position than their peers to secure new government projects.

On the valuation front, these companies are trading at an enterprise value (EV)/operating profit (EBITDA) range of 3-7; a 20-30 per cent discount to their past three-year EV/EBITDA.

A key factor investors need to bear in mind is that these companies may get re-rated given their relatively high execution of their order book, reasonably good valuation and their ability to bid for new projects due to relatively less stressed balance sheet.