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Construction execution picks up, rich order inflows to aid recovery

Our Bureau Hyderabad | Updated on April 06, 2021

Projecting a pick up in the country’s engineering, procurement and construction (EPC) sector in FY 2022, India Ratings expects that the rich order inflows into the sector will aid recovery of the sector hit by the panedemic.

Order book revenue visibility increased 3.1x the revenue on trailing twelve-month due to higher order allocations in almost all segments. It expects roads, buildings, railways and irrigation related segments to see major order inflows in FY22, backed by rich budgetary allocations.

Ind-Ra in its FY22 construction outlook has revised the sector outlook to improving from negative, based on the rich budgetary allocations which would result in huge order inflows coupled with better execution rates.

In 9MFY21, the revenue as reported by the top 18, listed construction companies (excluding Larsen & Toubro Limited (‘IND AAA’/Stable) declined 12.2 per cent yoy (1HFY21: negative 20 per cent), majorly due to the impact of Covid-19 led disruptions and nationwide shutdown of construction activities in 1QFY21.

With the increase in execution rates in 4QFY21, Ind-Ra believes the overall revenue would decline by 4 per cent yoy in FY21, followed by growth of 15 per cent - 20 per cent yoy in FY22.

As per data from Projects Today, the value of the project tenders announced during 3QFY21 was up by 36 per cent yoy to ₹2.07 trillion. The tenders announcement was led by road (accounting for 47 per cent), water & irrigation works (24 per cent) and building segment (17 per cent). Cumulatively, the tenders announced in 9MFY21 were 98 per cent of the total tenders announced in FY20. Tenders were led by road (36 per cent), water (26 per cent), building (17 per cent) and mining (9 per cent).

For the period of 3QFY21, roadways and mining have seen intense competition. Roadways had seen around 34 per cent yoy more bids from over five players and mining had seen around 75 per cent yoy more bids from over five players, pointing to lower pricing power. Also, 21 per cent of the orders for road segment and 18 per cent of railways & metro segments have an L1-L2 gap of more than 15 per cent. This shows the higher qualifications required to execute complex projects which signifies lower participation.

Published on April 06, 2021

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