Despite business being impacted due to slow execution in Q1 FY22 on account of the second and more virulent wave of Covid infections, the construction sector companies are expected to see a growth of 12-15 per cent in the current financial year, ratings agency ICRA said.
ICRA Assistant Vice-President and Sector Head Abhishek Gupta said, “The construction companies are likely to see healthy growth of 12-15 per cent in FY22 despite slower execution in Q1 FY22 due to the second wave of Covid-19, as the impact was short-tenured and less severe than the first wave with construction activities permitted in most states”.
Gupta added that the order book-to-operating income ratio of most of the construction players is above three times, which provides revenue visibility and the pipeline of projects to be awarded also remains healthy.
“However, delays in land acquisition, and funding challenges faced by a few State governments remain key risks to the order inflows. Operating profitability is expected to moderate by 100-200 bps, with increase in key raw material cost and increased competitive intensity, though the benefits of improved execution scale will negate the impact to an extent,” Gupta explained.
As the relaxations under the Atmanirbhar scheme are likely to be gradually removed in 2022, there could be an increase in working capital intensity and bank guarantee (BG) requirement. However, most large construction companies will have adequate liquidity cushion to absorb this. Nevertheless, small and mid-size companies could witness some pressure with increased BG requirements. Overall, the credit profile of construction companies is expected to remain