Centre Spending Boosts Infra Companies

Heavy capital expenditure to boost economy helps construction firms improve order book and profit margins.

- ASHUTOSH KUMAR

Construction of infrastructure, especially highways, has been central government's most important economic agenda to lift GDP growth. The massive capital spending has resulted in a sharp improvement in profitability of infrastructure development firms.

Since FY20, Centre has undertaken capital expenditure of ₹21.26 lakh crore in order to boost private investment and consumption through the multiplier effect. This is 14.42% of India’s ₹147.36 lakh crore real GDP and 9% of its ₹236.65 lakh crore nominal GDP for FY22. The impact is visible in first quarter FY23 numbers of infrastructure construction companies. Most have improved their net profit margin significantly over the pre-pandemic quarter of December 2019. This is clearly showing in their bottom lines.

Highway construction major IRB Infrastructure Developers reported a five-fold jump in consolidated net profit in Q1 of FY23 to ₹363.20 crore compared with ₹72 crore in corresponding quarter of the previous financial year. Net profit margin more than doubled to 18.87% compared with 9.17% in Q3 of FY20. The company had slipped into a loss in June and September 2020 quarters in the wake of the national lockdown.

Other companies that have reported a significant boost to profitability during the period (Q1 FY23 vs Q3 FY20) are Ashoka Buildcon (7.16% vs 2.53%), PNC Infratech (11.72% Vs. 4.81%), KNR Construction (9.14% Vs. 8.59%) and Ramky Infrastructure (1.27% Vs. -18.91%), as per a