Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Industry News

| More

ICRA maintains stable year-end outlook for Construction sector

Posted On: 2019-12-26 06:53:37

- Rs. 100 trillion infrastructure investment over next five years to be a key growth driver for construction sector

- Credit profile of most construction players to remain largely stable

ICRA has given a stable outlook for the construction sector, in its year-end assessment of the sector.

The order inflow for construction sector has been robust over the last few years, supported largely by increased Government spending towards infrastructure. However, H1-FY2020, has witnessed lower new order inflows and cancellations of some orders in the state of Andhra Pradesh, which has resulted in a decline in order book for some players. Nevertheless, the order-book position of most of the construction players is currently adequate to provide medium term revenue visibility.

As the Government plans to more than double the investment in Infrastructure to about Rs. 100 trillion over the next five years, the construction companies are likely to witness significant opportunities with key segments being highways, railways, ports, urban infrastructure and airport. In the Railways segment, besides the core railway capex (doubling, new lines, signalling, electrification, etc), the station redevelopment, is expected to provide significant opportunities to the construction companies. Similarly, in the highways sector, adequate pipeline of projects for development/upgradation of the national highways and state highways exists. The Bharatmala Pariyojana project itself is expected to provide large opportunities for the construction sector as the programme is the largest road development programme in India.

With a huge pipeline of projects to be awarded in the infrastructure sector, ICRA expects the new order inflows for construction companies to improve in CY2020. However, delays in land acquisition, funding issues, and State Government priorities remains key risks to the new order inflows. The order inflows from non-infrastructure segments like industrial and real estate (excluding affordable housing segment) is expected to remain muted, with weak private sector capex growth.

On the execution front, ICRA expects the healthy order-book should support growth in operating income of construction companies in the first half of CY2020, though it could witness moderation if the new order inflows weaken. However, construction companies which have leveraged balance sheets and stalled or slow-moving projects, would continue to face challenges.

As for financial health, operating profitability is expected to remain stable with the benefits of benign inflation and steady execution; though this would also be dependent on any steep variation in key raw-material and labour cost. However, the capex and working capital requirement could absorb most of the cash accruals. The working capital cycle for the larger construction players has remained at higher level, owing to slow realization of receivables, and slow-moving legacy projects. This has been met partly by higher creditors, thus percolating to sub-contractor's working capital cycle as well. The working capital situation is not likely to see any major improvement in the near term. Further, many construction entities have faced challenges in meeting their Bank Guarantee requirement which is likely to persist. In the absence of adequate Bank Guarantee limits, companies will not be able to unlock retention money or avail mobilization advances thereby having an adverse impact on their liquidity.

With healthy accruals, the balance sheet of many construction companies has improved over last 2-3 years. With increased scale of operations, the debt of construction companies is expected to increase, albeit marginally, except in the case of increase in working capital intensity or investment in asset owning model like the Hybrid Annuity Model (HAM) based projects where the increase in borrowing could be higher. While the overall credit profile of construction companies has improved in last couple of years, many players in the sector still remain highly leveraged and their liquidity pressure is likely to persist in the short-term as the lenders remain cautious towards the infrastructure/construction sectors. Their ability to raise funds via stake sale in its subsidiaries, monetisation of assets, or dilution of equity will be key factors in improving liquidity and the capital structure, particularly for companies that have been aggressive in the BOT space in the past.

Asset monetization can also help in lowering the borrowing levels for companies which have operational assets. Many such transaction have taken place in the last few years particularly in the road sector, with active interest from private equity, pension funds, and other long-term investors in acquiring operational projects. Infrastructure Investment Trust (InvIT) can also help lowering the leverage for construction companies which had ventured into asset-owning business and have multiple operational projects. With an improvement in the equity capital markets, equity-raising ability has also improved. Some construction companies have successfully raised funds through the equity route like IPO/QIPs/rights issue/warrants/preference shares, which has helped in improving their balance sheet and liquidity position.

Due to these factors, ICRA expects the credit profile of construction companies to remain stable in the short to medium term.

Source: Equity Bulls

Click here to send ur comments or to

Other Headlines:

SIDBI and TransUnion CIBIL launch MSMESaksham

Tata AIA appoints Naveen Tahilyani as Chief Executive officer and MD

Sharekhan just went Bollywood ! Launches MoneyFLIX, World's First Financial Movies Platform

Angel Broking becomes 4th largest brokerage house in the country based on active clients at the NSE

IL&FS board upgrades estimates of debt addressed to over Rs. 57,000 crore

Upstox Registers 1 Million Customers; Aims to Double by December 2020

Reliance Securities launches new referral programme to provide enhanced digital experience to customers

RankMF Launches India's First Mutual fund Portfolio Sanitization Tool: SmartSwitch

Blue Ashva Capital announces initial close of SME focused India Fund

Convergent Finance LLP announces USD14.1 mn investment in Jyoti International Foods

Angel Broking records highest monthly client addition of 1Lakh +

Universal Sompo General Insurance Company Limited has announced the appointment of Sharad Mathur as its Managing Director & CEO

Sonalika Tractors Records 18.6% Overall Sales Growth in May'20

Upstox revamps its trading platform; introduces Pro Web 3.0

SATYA MicroCapital Ltd. gets MFI Grading uplift from ICRA

Indian Space Technology Startup VestaSpace Technology Receives USD 10 million Funding from US-based Next Capital LLC

ICAI Stands with Government to fight against COVID 19

Honda 2Wheelers India pledges support to its dealer family to maintain business continuity

Moneycontrol Pro reaches a new milestone - 1.5 lakh paying subscribers

Former Executive Director, RBI - Mrs. Surekha Marandi joins SATYA MicroCapital Limited as Independent Director

Arcil commits Rs. 1.5 Crore towards India's fight against COVID-19

Cognizant to acquire Lev to expand Digital Marketing expertise

Hon'ble Finance Minister reaches out to CAs for promoting Vivad se Vishwas scheme

SIAM numbers - Suman Chowdhury, President - Ratings at Acuité Ratings & Research Ltd

Sterlite Power Concludes Sale of Novo Estado

mastertrust Slashes its Trading Fees to Zero, on the MobileApp, for Millennial

CAMS FinServ receives RBI license for Account Aggregator service

Brookfield Properties bags four awards at the ET Now Global Real Estate Congress Awards 2020!

RXIL Digitizes its MSME Onboarding using Jocata GRID

Indian Exhibition of Air Conditioning Industry Draws International Attention

India Post Payments Bank Crosses Milestone of 2 Crore Customers

EFL revolutionises AC's by launching Health Conditioners

BankBazaar Looking to End FY20 at EBITDA Profitability Despite Tough Year for Fintech

Sapient Wealth Advisors organises its 11th annual conference in Pune

ICAI sign MoU with IIM Jammu

Venture Garage Conducts 5th and Final Leg of 'Find Your Investor' Programme in Chandigarh, Supported by Kotak Mahindra Bank

BRICS CCI announces Direct Tax Summit & Awards 2020 in association with Achromic Point

ETMONEY introduces the National Pension System (NPS) on its App

Anviti Insurance Brokers Expands Presence in India, Opens its 7th Office in Delhi NCR - Noida

Global shrimp demand and prices contract following the n-coronavirus pandemic: ICRA

ICAI 70th Annual Function

ETMONEY unveils India's first and only tax saving solution

Cashfree introduces 'Instant Settlements', makes online payments as attractive as cash

TrustLine Announces Successful Closing of Intrinsic Deep Alpha AIF - Category III Offering

Bharti AXA General Insurance Receives IRDAI Nod for Health and Motor Insurance Proposals under Sandbox Project

Ather Energy invites dealers to set up experience centers across India

Restriction on import of refined palm oil will safeguard the margins of domestic palm oil refiners while also improving their capacity utilisation: ICRA

Cognizant Named a Leader in SAP Services by Independent Research Firm

CarDekho becomes first auto fintech platform to process 100 cr of monthly used car loans

Super Surfaces raises half a million USD as Angel Funding

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019