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Shares of Afcons Infrastructure surged as much as 7% to ₹272 on Tuesday, fuelled by upbeat investor sentiment over the potential listing of Tata Sons. The link between the two lies in their ownership structure: promoter group Shapoorji Pallonji holds a 50% stake in Afcons and also owns 18% of Tata Sons. Afcons boasts a strong track record in the engineering, procurement and construction (EPC) business, with Ebitda margins outperforming Larsen & Toubro’s (L&T) projects and manufacturing division. Afcons reported Ebitda margins of 10-11% for FY25 and FY26, compared to L&T’s 8.3%. However, high interest expenses absorbed nearly 55% of Afcons’s ₹1,217 crore Ebitda in FY26, escalating further to 69% in Q1FY27. Absolute interest costs rose 7% year-on-year to ₹173 crore during the quarter. If the promoter group resolves its liquidity issues by monetizing its Tata Sons stake following a listing, Afcons’s interest burden could ease. This relief wouldn't necessarily require equity infusions that dilute existing shareholding. Instead, an improved credit rating for the group could enable Afcons to negotiate lower interest rates on its debt. Ripe for a re-rating? Could a resolution to Afcons’s interest cost burden trigger a re-rating for the stock? Likely so, given its robust order book of ₹43,300 crore and a solid book-to-bill multiple of 3.8 as of Q1FY27. Margins could also expand further if the company secures more international contracts, such as the Croatia rail project won in Q1FY27. Overseas orders currently account for 26% of the backlog, with domestic projects making up the rest. On the Q1FY27 earnings call, management noted that international projects yield 200-300 basis points higher profitability than domestic ones, meaning increased execution of overseas work could deliver upside margin surprises. Afcons stock has lost 28% of its value in 2026 so far, and has largely traded below its public issue price of ₹463 in November 2024. The business outlook remains strong, and any reduction in the interest burden would directly boost earnings per share. Even without factoring in potential interest cost savings, the stock trades at an attractive price-to-earnings multiple of 18 based on PhillipCapital’s FY28 estimates.
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