Valuations of some infra stocks at 2006-2008 high levels

Mumbai: The valuations of various construction EPC (engineering, procurement, and construction) stocks are now nearing the levels seen in 2006-08 - the strongest bull run for these names - following the recent run-up in the share prices, said IIFL Securities.

After the blistering rally in 2004-2008, most of these stocks started crashing in January 2008 triggered by the Global Financial Crisis (GFC). The recovery in infrastructure and construction-related stocks began only in 2020-2021 though many of them are still far away from their 2007-08 peaks.

The brokerage said this time, however, these companies' debt positions are far more comfortable and the order books are large on account of the government's focus on infrastructure. Also, these companies are in a position to monetise their Hybrid Annuity Model (HAM) infrastructure projects, it said.

According to the brokerage, the projected Price to Earnings (PE) ratio - a popular valuation measure - of some of these companies such as KNR Construction, HG Infra Engineering, Power Mech Projects, and NCC is 19-20 times - the average levels seen in 2006-08.

High PE levels on account of a sharp surge in share prices are usually seen as a warning sign by investors as elevated valuations increase the vulnerability of stocks in adverse times.