Toll Hike: These Two Stocks Could Benefit From The Price Rise

Highway operators will earn more revenue as the National Highways Authority of India has announced a 5% hike in toll rates, effective from June 3 across India, in order to align with consumer price index-based inflation. This comes with a nearly two-month delay due to Lok Sabha elections.

Toll collections at the highway plazas have been growing in the 15-20% range annually and FASTAG collections stood at over Rs 50,000 crore at the end of March 2024. They are expected to increase cash flows for all highway operators.

Here's a look at which stocks might benefit from a rise in the toll hike.

IRB Infrastructure is purely involved in the construction and operation of highways in India and operates across 12 states. Its revenues come from toll collections, which grew 27% year-on-year to Rs 2,505 crore in the fourth quarter of fiscal 2024. The operating margin rose to 53% from 49%, while net profits were up 45% to Rs 189 crore during the same period.

The increase in toll prices will increase collections and, therefore, revenue.

The total order book stood at about Rs 35,000 crore. Of this, Rs 8,000 crore is executable within the next two years.

The company has cash of Rs 2,700 crore, which provides enough scope to bid for new upcoming projects. As of fiscal 2024, the company has 2,938 kilometres of roads under construction and 12,506 kilometres of operational roads.

Shares of the company have given 148% returns in the past year.

Ashoka Buildcon Ltd. is a highway developer that is also into power transmission and distribution, city gas distribution, and railways. Roads are the company's primary segment, contributing 45% of revenue. The consolidated revenue for the company grew 22% year-on-year to Rs 3,052 crore in the fourth quarter of fiscal 2024.

Its reported operating margins were at 23%, compared to 23.6% during the quarter. The consolidated profits were at Rs 254 crore, compared to a loss of Rs 44 crore in the fourth quarter last year.

The management expects margins to improve in fiscal 2025, as one of the projects with low margins is expected to be completed by the first quarter. The road segment's order book was Rs 6,214 crore, which is 53% of the total order book. As of fiscal 2024, the company had around Rs 820 crore in cash.

In terms of guidance, the company is expecting revenue growth of 15% for the financial year 2024-2025, and operating margins are expected to range between 9% and 9.5% during the fiscal and around 11–11.5% for fiscal 2026.

Most recently, the company was the lowest bidder for the construction of two bridge projects in Maharashtra, which are expected to be completed within the next three years.

Ashoka Buildcon stock has given a 127% return over the past year.

Other companies which derive revenue from national highway toll collection are KNR Construction Ltd., PNC Infratech Ltd., JK Infraprojects Ltd. and HG Infra Engineering Ltd.