Govt spending continues to crank up infra growth
Government investment in infrastructure sector continues at a healthy pace. Multi-lateral funded projects such as metro, roads and large projects are witnessing traction, said ICICI Securities Ltd in a report. It anticipates strong growth in steel sector with positive rub on private sector capex.
Given the recent bull-run in commodities, de-leveraged balance sheet and China plus one strategy by certain global market players, steel companies have announced capacity addition. This improves the overall demand outlook in medium to long term.
"Execution of projects is gradually returning to normalcy and we expect the overall utilisation to improve. Infrastructure and efficiency improvement may be the major pillars, which will support the overall growth," ICICI Securities Research Analyst Renjith Sivaram said in the report.
Project execution is limping back to normalcy, though there is a concern due to social distancing norms. Steel companies are gearing up towards capacity expansion and this can result in a major uptick in the overall private sector ordering activity in medium to long term.
Industry focus will be on maintaining a healthy balance sheet by prioritising collections, automation and digitalisation trends continue to witness healthy adoption. The research analyst suggested L&T, KEC International, Kalpataru and ISGEC as the top picks.
He said: "There has been buoyancy in private sector led by cement, process industries, chemicals and pharma. Public spending towards infrastructure and traction from multi-lateral projects continues to fuel demand. We factor-in revenue growth of 39.6 per cent year-on-year in the first quarter of next financial year for our coverage universe, given the low base of first quarter of this fiscal."
Factoring the improvement in growth outlook, the financial services firm has revised target prices of L&T, Cummins, KEC, Kalpataru, VA Tech Wabag, Honeywell, Grindwell and Carborundum upwards.