ICRA projects revenue boost for Indian construction sector

ICRA anticipates positive developments for Indian construction industries, supported by strong order books and the government’s emphasis on infrastructure.

ICRA forecasts Indian construction firms to sustain solid revenue growth in FY2025e, with a projected YoY growth of 12 to 15 percent this fiscal year, aided by an acceptable order book position and the government’s focus on infrastructure development. As of June 2024, ICRA’s sample group of enterprises had an aggregate order book-to-sales ratio of 3.1x, indicating strong revenue growth prospects in the medium run.

Chintan Lakhani, Vice President & Sector Head – Corporate Ratings at ICRA says,“The fresh order inflows remained modest during Q1 FY2025, mainly due to the General Elections, akin to the FY2020 election period. The order-awarding activity has picked up from Q2 FY2025 onwards; nevertheless, the order inflows in FY2025 are likely to slightly trail those seen in FY2024e. Order inflows in the road segment have remained muted during the last three-four quarters; however, in other segments like urban infrastructure, drinking water, and sewage treatment projects, the inflows continue to remain healthy.”

In recent years, ICRA noticed rising rivalry in sub-segments such as railways, roads, irrigation, and urban infrastructure. However, road projects awarded by MoRTH/NHAI face increased competitive pressure, which is evident in the majority of bids awarded at a significant discount to the authority’s base price. Despite planned revenue growth and operating leverage benefits, operating margins are forecast to stay steady at 11 percent ± 25bps in FY2025e. ICRA maintains a stable outlook for the industry, citing consistent increase in operating income, moderate leverage, and adequate coverage criteria.

“The Atmanirbhar Bharat scheme, introduced in June 2020, provided relief to contractors during the Covid-19 pandemic (in the form of monthly billing frequency, and lower bank guarantee requirements amongst others), which eased the funding requirement. ICRA expects the cash conversion cycle to elongate in the current fiscal, post expiry of Atmanirbhar Bharat scheme-related relaxations in March 2024. While debt levels are expected to increase to support the higher working capital requirements, the corresponding operational leverage benefits are anticipated to keep the interest cover at around 3.6-3.9 times in FY2025e,” Lakhani adds.

For more details, visit: https://www.icra.in/

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