Watch out for Infra stocks

by khalid on 08/09/2011 · 2 comments

In the Indian stock markets we saw some interest buying into Nagarjuna constructions & IVRCL stocks. There has been a flow of orders there and both these companies are in similar space.

The markets are expecting some positive news from IVRCL and other companies who are in the infrastructure space. IVRCL has the benefit from its subsidiary company which is a operator in real estate and infrastructure projects. The value of those businesses is not been captured in the market cap of IVRCL.

The valuations are pretty attractive at these levels and since 2008 we have hardly seen any growth in the bottom line of the engineering construction companies although the top line has grown. These companies still have a very sound order book position but to get there cost structure in right order and interest rates have clearly impacted the companies as the industry requires a high working capital.

The infrastructure valuations have become attractive at the current levels and if you want to play as a contrarian type then these companies will fit well in your portfolio given the fact that at some point of time the interest rate will stabilize and start reducing.

The lagging effect in the infrastructure projects or construction & engineering projects will result in better top line and a good order flow for the infra companies. After 2-3 years we could see growth trajectory in all infrastructure companies but that is a long term story.

“Bell the bull says:  The next couple of quarters result may not be impressive for infrastructure companies “

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