ABSTRACT

Comparative analysis of companies in the construction sector

Identifying investment oppurtunity

By

Piyush Rakhecha

The quality of infrastructure directly impacts the economic growth potential of an economy. Most prominent sector responsible for development of infrastructure in an econmy is the construction and contracting sector. With the planning commission of India having proposed an investment of $1 trillion in the 12th five year plan and formation of a stable government in the 2015 elections pushing for implementation of projects, the situation for this sector is only going to improve. Now having discussed the importance of construction sector in an economy it was necessary to identify good companies for making medium term investment.

This research was focussed on providing a comparative analysis of six companies in the construction sector specifically to identify value investing oppurtunities.The parameters used for comparison were the 7Ps namely price, product, people, profitability, philanthropy, peer performance, and prospects. The parameters chosen were based on the company’s tried and tested strategy having worked on it for the past 15 years. Each of the 7Ps have a significance for gaging the fundamentals of the company. Price is important to understand whether the company is expensive/overvalued or undervalued at current market price, the product has made us understand the business of the company or simply put what the company does and which kind of projects they undertake?People/Management play a vital role as tmanagement takes important decisions for the company. Then an analysis of profitability has been done to analyse the returns on investment. CSR initiatives are also highlighted in the study. Last and certainly not the least important is the prospect as they have brought out the future plans and business environment of the six companies.

The study was limited to the 7Ps for providing a comparative analysis. Secondary sources were used to obtain information on the companies and their individual performance. The most important sources of information for getting facts, figures and charts were Dynamic Levels, Money Control, and Bloomberg website. The company annual reports were refered to gain an understanding about the company, there management discussion and analysis, products, on going and upcoming projects and future prospects.

General findings are that there is a strong pipeline of road construction and maintainance projects to the tune of 8,800 kms to be awarded by the NHAI and most of such projects are expected to be given on Engineering Procurement and Construction(EPC) mode rather than Build -Operate and Transfer(BOT) mode.NHAI is also shifting as many as 14 projects from PPP to EPC mode owing to a drastic decline in the takers of PPP projects since 2012-2013. Shift to EPC mode will certainly help the construction companies to increase their revenue flows.

After the 7P analysis We recommend KNR Constructions because the company will benefit from the

shift to EPC mode as there core strategy is to bid for EPC contracts. The stock is available at a P/E of

6.4 which is well below the industry average, and book value of 186 which suggest an attractive

valuation given the earnings and strong balance sheet compared to its peers.The company broadly

takes up projects in road construction and irrigation/ water management segments. balanced capital

structuring and efficient cost control measures shows that the company is well managed. The

company also registered a strong financial performance with net profit rising 67% over the previous

quarter. KNR Constructions Limited successfully bid for a project for the first time in Arunachal

Pradesh. The company has on going projects in the states of Gujarat,Karnataka,Tamil Nadu,and

Kerela.