9 Best Infrastructure Stocks in India 2023

Infrastructure serves as the foundation for any economy. When aspiring to transform from a developing nation to a developed one, it becomes crucial to reinforce the infrastructure. This encompasses various elements such as roads, railways, air and water connectivity, along with commercial and residential centers. Strengthening these aspects not only generates employment opportunities and boosts income but also stimulates both domestic and international business activities through imports and exports.

A well-developed infrastructure plays a pivotal role in connecting a country to the global stage. It is undeniable that any nation striving for excellence must prioritize the construction of robust infrastructure. Consequently, the Union Budget consistently allocates increasing funds to capital and infrastructure investments, recognizing their paramount importance. For this reason, infrastructure companies in India find themselves with vast opportunities to capitalize on this trend. Let’s delve into some of the best infrastructure stocks in India that investors should seriously consider adding to their portfolios.

Best Infrastructure stocks in India

1. Adani Ports and Special Economic Zone Limited

Adani Ports and Special Economic Zone (APSEZ) Limited holds the prestigious title of being India’s largest commercial ports operator, contributing significantly to nearly 25% of the country’s cargo movement. Operating across 13 domestic ports in 7 states, APSEZ has established a widespread presence throughout India.

The company’s ports are equipped with cutting-edge facilities to handle a wide range of cargos, including dry cargo, liquid cargo, crude, and containers. Over the last few years, APSEZ has demonstrated remarkable growth, with revenues achieving an impressive CAGR of 13.83%, and net profits displaying a steady CAGR of 6.6% during the same period. As a testament to its efficiency and success, the company boasts a commendable return on capital employed, standing at 18% for FY21.

2. Larsen and Toubro Limited

Larsen and Toubro Limited, a renowned conglomerate, specializes in providing comprehensive engineering, procurement, and construction (EPC) solutions across various sectors. These sectors encompass infrastructure, hydrocarbon, power, information technology, and financial services.

Over the past five years, the company has exhibited consistent growth, with revenues witnessing a notable CAGR of 7.43%. Additionally, net profits displayed a commendable CAGR of 8.2% during the same period. Furthermore, Larsen and Toubro Limited showcased an impressive return on capital employed, standing at 15% for FY21, indicating efficient utilization of resources and capital.

3. KEC International

KEC International, a subsidiary of the RPG Group, is an esteemed engineering, procurement, and construction company. With its diversified portfolio, KEC operates across various verticals, including power, power transmission, cables, railways, telecom, and water.

The company boasts a robust order book, encompassing both domestic and international projects, showcasing its strong market presence. With a market capitalization exceeding Rs. 11,600 crore, KEC has demonstrated its substantial market value. Moreover, over the past year, the company has delivered an impressive 17% return for its investors, highlighting its commitment to generating favorable returns.

In terms of its order book composition, the power transmission and distribution sector dominate, followed by civil construction and railways. This diversified order book allows KEC International to leverage opportunities across multiple sectors and ensures a steady flow of projects.

As KEC International continues to thrive in the industry, it remains well-positioned to capitalize on its strengths and pursue further growth in the dynamic engineering and construction landscape.

4. Dilip Buildcon Limited

Dilip Buildcon Limited stands as one of the prominent infrastructure giants in India. The company embarked on its journey by undertaking residential projects, establishing petrol pumps, and securing government contracts. Subsequently, it ventured into road construction in Madhya Pradesh. Notably, the company’s revenue witnessed a remarkable surge, escalating from ₹230 crores in FY10 to an impressive ₹9700 crores in FY20.

With a strong commitment to timeliness, Dilip Buildcon Limited asserts that they have successfully completed 95% of their projects within the stipulated deadlines. Moreover, they possess an extensive fleet of owned construction equipment and maintain a workforce of 38,500 dedicated individuals. While their debt burden grew substantially from ₹100 crore in FY10 to ₹9000 crores in FY20, it is important to highlight that the company has an impressive ₹26,000 crores worth of projects in their pipeline.

5. GMR Infrastructure Limited

GMR Infrastructure Limited is actively involved in various sectors, including the development and operations of airports, power generation, coal exploration activities, highway development, and engineering, procurement, and construction contracting activities.

However, over the past five years, the company has faced challenges, as evidenced by a decline in revenues with a CAGR of -8.19%. Despite this, net profits managed to achieve a modest 1% CAGR during the same period. Unfortunately, the return on capital employed for FY21 stood at -0.52%, reflecting the difficulties faced by the company in effectively utilizing its capital resources.

It is important for GMR Infrastructure Limited to address these challenges and implement strategic measures to regain growth and improve their return on capital employed.

6. Engineers India Limited

Engineers India Limited, an entity owned by the Government of India and established in 1965, specializes in providing engineering consultancy and related services primarily within the oil and gas, as well as the petrochemical industries.

Over the past five years, the company has demonstrated robust revenue growth, achieving an impressive CAGR of 15.38%. However, it is worth noting that net profits experienced a slight decline with a -1% CAGR during the same period. Despite this, Engineers India Limited showcased a commendable return on capital employed, standing at 17.42% for FY21. This indicates the company’s ability to effectively utilize its capital resources and generate favorable returns.

As Engineers India Limited moves forward, it is important for them to address the declining net profits and explore strategies to enhance profitability while sustaining their impressive return on capital employed.

7. IRCON International Limited

Incorporated in 1976, IRCON International Limited initially operated as a railway construction company. However, the company later diversified its business and transformed into an engineering and construction public-sector undertaking, specializing in sectors such as railways and highways.

Over the past five years, IRCON International Limited has achieved significant revenue growth, demonstrating an impressive CAGR of 16.58%. On the other hand, net profits experienced a slight decline with a -1.9% CAGR during the same period. Nonetheless, the company exhibited a commendable return on capital employed, standing at 18.60% for FY21. This highlights the company’s ability to effectively utilize its capital resources and generate favorable returns.

Moving forward, IRCON International Limited should focus on addressing the declining net profits while capitalizing on their expertise in the railway and highway sectors to sustain and enhance their revenue growth.

8. Rites Limited

Rites Limited, established in 1974 and owned by the Government of India, is a versatile consultancy organization offering services across multiple disciplines. The company specializes in providing consultancy services in the fields of transport, infrastructure, and related technologies.

Over the past five years, Rites Limited has demonstrated consistent revenue growth, with an impressive CAGR of 11.03%. Net profits also experienced a steady increase, achieving a 5.29% CAGR during the same period. Moreover, the company boasts an exceptional return on capital employed, standing at 23.44% for FY21. This indicates their effective utilization of capital resources to generate favorable returns.

As Rites Limited moves forward, it is essential for them to maintain their growth trajectory and further enhance profitability while sustaining their remarkable return on capital employed.

9. NBCC

NBCC, a leading project management consultancy company in the construction sector, operates not only as a consultancy firm but also as an infrastructure developer and an EPC vertical.

Despite a negative 13% return over the past year, NBCC holds promising potential as a long-term investment. Its diverse verticals are well-positioned for healthy business prospects in the coming years, especially considering the expected growth in infrastructure construction in India.

Currently boasting a market capitalization of slightly over Rs. 5,700 crore, NBCC remains an attractive choice for investors seeking long term growth in the infrastructure sector.

In addition to NBCC, other major infrastructure companies like Adani Ports and Special Economic Zones Ltd, Engineers India Ltd, IRCON International Ltd, RITES Ltd, and KNR Constructions also present potential investment opportunities. Investors may find these companies promising due to the favorable growth prospects in the Indian infrastructure market.

With India’s infrastructure construction poised for significant expansion, prudent investors should consider exploring opportunities in these well-positioned infrastructure companies for potential long-term gains.

Conclusion

As discussed earlier, the aforementioned infrastructure stocks in India present attractive investment opportunities to capitalize on the country’s growth. However, it is crucial for investors to exercise due diligence and conduct thorough research before making investment decisions. Several factors should be considered, including upcoming properties, debt/equity ratios, valuations, and corporate governance practices of the companies.

Additionally, it is essential to examine the delivery schedule promised by builders and assess their adherence to it. Monitoring these metrics is crucial for making informed stock selections and ensuring prudent investment decisions.

By conducting comprehensive channel checks and diligent analysis, investors can position themselves for optimal stock picking and potentially benefit from India’s growth in the infrastructure sector.