Nuvama sees Afcons Infra in a ‘league of its own’, initiates coverage with Rs 535 target price

Domestic brokerage firm Nuvama Institutional Equities has initiated coverage on Afcons Infrastructure Ltd (AIL) with a ‘buy’ rating and a target price of Rs 535, as it believes that the company is ‘in a league of its own’.

The target price given by the brokerage firm implies a 23% upside potential from current levels.

The brokerage firm highlights AIL’s combination of growth and stability, strong financial management, and robust order book as key drivers for its positive outlook.

Consistent growth in a cyclical industry

Despite operating in an inherently cyclical sector, Afcons has been among “the handful of contractors that have been able to deliver steady growth over a long period of time.”

The company’s order book and order intake increased at a CAGR of 17–18% over FY06–9MFY25, while revenue and PAT clocked CAGRs of 18% and 29%, respectively, over FY06–24.

Nuvama believes this momentum will continue, projecting EBITDA and PAT to compound at 17% and 22% CAGR over FY25–27E.

Financial strength & efficient capital management

Afcons has achieved strong revenue growth while simultaneously reducing its leverage. The firm highlights that “the ability to deliver consistent growth while simultaneously reducing its leverage sets AIL apart from its peers in our view.”

Over the years, Afcons has significantly expanded its revenue and gross block (by 3.7–3.8x since FY14) while halving its net debt-to-equity ratio. This reflects “efficient working capital management,” enabling the company to fund growth through internal accruals rather than excessive debt.

Diversified business model reducing risk

The brokerage firm emphasizes that AIL has ‘optimally diversified its operations by segment and geography,’ allowing it to maximize opportunities while insulating itself from market fluctuations. Afcons has a presence in virtually every infrastructure segment, and historically, its overseas operations have made up 25–30% of its business.

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Strong order book provides revenue visibility

With a “robust order intake in FY25,” Afcons currently has an order book-to-bill ratio of 3.8x (including L1 orders), significantly higher than its historical average. This increasing size and complexity of projects supports long-term revenue visibility.

“AIL’s success story is built on the foundation of many levers: i) expertise in undertaking large value and complex projects—which are challenging, unique and ‘first of its kind’; ii) professional management with rich industry experience; iii) lean working capital—among the best in the EPC space; iv) significant investment in building up its equipment base (Rs 40bn addition to gross block over FY14–24); v) a focused approach—core EPC contractor, which has stayed away from asset ownership ventures; and vi) last but not least, knowledge management practices,” Nuvama said.

“Its margin trajectory is improving, driven by increasing size/complexity of projects,” Nuvama notes, adding that Afcons is well-positioned to capitalize on India’s growing infrastructure push.

Around 11 am on Friday, the shares of Afcons Infrastructure were trading 1.4% higher at Rs 443.75 on the BSE.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)