The Hindu Business Line : New policy for road contracts

The delay in awarding contracts for road projects under the public-private partnership (PPP) model following the Government's decision to introduce new rules for such contracts may further dampen market sentiment in construction stocks. Companies with a concentrated presence in the road sector will suffer the most.

The National Highways Authority of India has awarded no contracts under the PPP model so far this fiscal, as these projects have to be routed through yet another committee for approval before starting the bidding process. This could delay the process by 5-6 months. Though the order backlog for most construction companies is good, their earnings growth has slowed and margins have been under pressure. They are also facing capital shortage to meet working capital needs and to bid for bigger projects. The valuation of construction stocks was marked down sharply on these concerns. Delays in awarding contracts could impact valuation further. This may also have a fallout on companies approaching the capital market to raise resources to fund build-operate-transfer projects. A number of companies are trying to upgrade from being mere civil contractors to an ownership-based model. The market response for IPOs from such companies may be subdued as there may be concerns about the ability of these companies to qualify under the new rules.

Sowmya Sundar

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