BofA Analyst on Top Stocks: Infrastructure
Bank of America Securities (BofA) expects the government of India to continue rolling out reforms to push manufacturing, FDI, break government monopolies and improve funding visibility.
“Our bottom-up analysis suggests $356 billion of projects could be awarded cumulatively in FY 22-23, led by government-funded infrastructure, private sector-funded infra, real estate, and industries,” the report said. Analysts expect the government to continue trimming subsidies to pave the way for more infrastructure Capex going forward.
On the Contrary, BofA said that funding will not be a problem for the government. Higher fiscal deficits until 2026; government recycling capital by monetizing operational infra assets; PSUs’ un-levered balance sheets; room to expand leverage at government’s infra entities; private sector underleveraged; and DFI plans are believed to help funding visibility.
Here are the top picks suggested by BofA:
- Larsen & Toubro:“Both earnings growth & core RoEs are currently close to historical lows, providing scope for upside on improving order inflows,” BofA said. The brokerage firm has upgraded its price objective for L&T to Rs 1,780 from Rs 1,663 apiece. Currently, L&T trades at Rs 1,458 per share.
- Adani Ports and SEZ:“We believe markets are likely to ascribe premium valuations for this ability to grow inorganically, and hence we see room for current valuation at 21x 2-yr forward PE (at +1SD) to expand further,” they added. A price objective of Rs 865 per share has been set by BofA analysts. Current stock trades at Rs 719 apiece.
- Voltas: “While expectations of a harsh summer in 2021 are likely to drive UCP outperformance, we see the demerger of the projects business as a positive with markets now likely to ascribe higher multiples to the B2C business,” the report noted. Currently, the stock is trading at Rs 1,030 per share. A price objective of Rs 1,187 apiece is forecasted.
- NTPC:BofA said the company has a strong balance sheet to support its portfolio growth. The price objective for NTPC is Rs 114 per share.
- Bharat Electronics:“In the absence of any large order, we expect order inflow to be flat over FY20-23E. We think margins could also normalize to sustainable levels of 19.5-20% (vs 21% in FY20) and working capital is likely to remain elevated,” BofA said. Currently, the stock is trading at Rs 138 per share, while BofA sees a price objective of Rs 156 apiece.