Slowdown hits construction sector: ICRA

PTI | | Updated on: Oct 24, 2012


The construction industry is witnessing a decline in order inflows mainly as corporates have been deferring their capex plans due to policy delays, according to a report by rating agency ICRA.

“The construction industry continues to face multiple challenges, capex deferrals by the private sector due to dwindling business confidence and stalemate in policy and decision—making have resulted in muted order inflows,” the report said.

The FY’13 targets set up by the government for various sub—sectors such as roads, ports, power, railways and airports could increase pace of tendering, progress on actual execution, ICRA senior vice—president and co—head for corporate ratings Rohit Inamdar said in the report.

However, execution of existing order books has slowed due to delays in land acquisition, forest clearances, rising input and labour costs and weakened operating profit margins.

Even the sectoral leader L&T, which earlier this week reported an unexpected 42.3 per cent in net profit in Q2, said investments, are coming mainly in the infrastructure sector, including transport and buildings, but the power sector is not seeing much improvement because of several sectoral issues.

Execution concerns have intensified as reflected in the elevated quantum of stalled projects and declining y—o—y growth rate of projects under implementation.

Going forward, opportunities for construction companies are expected from projects to be undertaken in the opportunities in railways, urban infrastructure — particularly metros, airports and roads sectors, the ICRA report said.

Most construction companies have ventured into the asset— ownership space by undertaking PPP project under build— operate—transfer mechanism through special purpose vehicles.

Project developers are facing delays in achieving financial closure for their PPP projects due to increased due— diligence by lenders, due to poor performance of many operational projects and aggressive bidding done by the developers in the recent project awards.

Published on October 24, 2012
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