The government of India (“GOI”) on 24th October, 2017 approved the biggest highway construction plan so far in the country. The said project aims to develop approximately 83,677 km of roads at an investment of Rs 6.92 lakh crore by 2022. This project includes construction of 34,800 km of highways, 9000 kms of economic corridors and 6,000 kms of inter-corridor and feeder route. Designing and development of Greenfield expressways and coastal road are all part of this centrally sponsored project.
Being one of the fastest growing economy, India’s infrastructure in terms of transportation has failed to cope up with the raising industry demand and expectation. According to the World Bank, Indian roads carry almost 85 percent of the country’s passenger traffic and more than 60 percent of its freight.
Thus, in order to improve the road connectivity as well as to meet the rising commercial demand for quick transportation, GOI launched the Bharat-Mala project.
Whenever an economy is under recession or is at trough, at those critical junctions, infrastructure development plays an important role as via these projects government infuse money into the economy trying to create demand and bring the economy on track. Not only that, Infrastructure projects undertaken also have a ripple of creating huge direct and indirect employment, distribution of purchasing power which would further lead to increasing demand.
However, there are some industries/ sectors that would largely benefit from this Road infrastructure push by the Government. Some sectors that would be benefiting from the same shall be discussed below:
Bharat-Mala would bring down all the Construction companies into the arena in order to compete for the government orders. Bharat-Mala, being a 6.92 lakh crores project (spread over 5 years), is not expected to be awarded to any single construction company. Thus with huge expected order books for many companies in the sector, the prospects of the entire industry is in a positive in a Foreseeable future.
DILIP BUILDCON Limited (BSE: 540047; NSE: DBL) has diversified significantly and is present in almost all the states, the company’s largest exposure is in the state of Maharashtra. Its huge self-owned fleet of Caterpillar construction vehicles provide an undue advantage in terms of company earning early completion rewards for completion of projects before Schedule (Rs.350cr in Q1 FY18). Dilip Builcon has been busy bagging orders from National Highway Authority of India (“NHAI”) for various development in many states. Since February, Dilip Buildcoin has bagged 6 orders from NHAI, having a contract price of approx. 4200 Crores.
The demand of construction fleet is directly proportionate to the quantum of ongoing or expected infrastructure projects. Domestic CV sales has been back on track since July 2017, which is driven by upside in demand post GST, healthy replacement-led demand in tractor trailer segment. This can be explained due to stricter implementation of CMVR regulations and pick-up in construction and mining activity, driving demand for tipper trucks.
ASHOK LEYLAND LIMTED (BSE: 500477; NSE: ASHOKLEY) being 2nd largest manufacturer of CV in India and with a Sales growth of 42% (YOY) in 3Q18 and PAT Growth of 178% (YOY) in 3Q18, the company is most likely benefiting from boost for CV. Apart with the Post GST growth in demand, the company has a deeply penetrated roots in the Indian Defense Force. According to the Directors Report, defense business will be an area of great focus in tactical, armored and tracked vehicles for the company. Ashok Leyland has added six new products into its current portfolio including the India’s first Electric Bus under the banner ‘Circuit series’.
Concrete roads being durable, weather-proof and require lower maintenance compared to bituminous roads have gained popularity and now majority of the roads are made of concrete. One cubic meter of concrete weighs about 2.5 Tonnes which require 350 Kg of cement as one of the component.
However, the demand for cement is likely to Increase owing to increase in demand for concrete due to 83,677 km of concrete road to be constructed under Bharat-Mala.
For construction of bridges, one of the basis raw material is the steel.
With an estimate cost at 6.92lakh cr, Banking will play an important part in providing credits, loans and Capital to the construction and Infra companies for timely completion of the projects.
Bharat-Mala would enable India to compete in closely integrated global markets in terms of pace and cost of transportation and would likely increase the cost efficiency of the manufacturing, and reduction in the transport time would ultimately lead to reduction in working capital and increase in profit margins.
It is a step taken to promote and create “Brand India” and a likely aid to the “MAKE IN INDIA”.