Investment outlay in infrastructure sector augur well for road construction companies

The business sentiment in India's construction sector is likely to turn more optimistic as the finance minister’s proposal to increase the capital investment outlay for FY24 by three times from the FY19 level is expected to improve the momentum of construction projects. The Ministry of Road Transport and Highways (MoRTH) plans to construct 12,000 km of highways in FY23. It has built 4,766 km of highways till November.
One of the key reasons why the pace of awarding of projects will sustain momentum is the increasing budgetary allocation. It is estimated that the budgetary outlay for the National Highway of Authority of India (NHAI) for FY23 was Rs1.3 lakh crore. Analysts estimate an increase of 10-20% in budgetary outlay for NHAI in FY24.

The Union Budget proposes to raise investment outlay in infrastructure by more than three times to Rs 10 lakh for FY24 crore compared with the FY19 outlay. In FY23, the Budget had proposed an investment outlay of Rs7,50,256 crore in the infrastructure sector. This amounts to a jump of 33% in investment outlay for FY24.

In the first eight months of FY23, NHAI awarded 2,422 km. According to analysts' estimates, NHAI is likely to award over 6,200 km for FY23. This should provide an incremental order book for well-placed construction companies such as KNR Constructions, PNC Infratech, Ashoka Buildcon, and NCC. According to analysts' estimates, the order book-sales ratio of these companies is close to 3.8, which means these companies have a revenue visibility of over three years.