Real Estate

Second Covid-19 wave unlikely to impact credit profile of mid-, large construction companies: ICRA

V Rishi Kumar Hyderabad | Updated on April 26, 2021

While the ongoing second wave of Covid-19 could cause some disruptions in the overall construction activity in the country, the performance of most mid and large-sized construction companies is not expected to be materially impacted, according to ICRA

Most of these companies are focussed on non-urban infrastructure projects (roads, railways, irrigation, etc) which are primarily located in relatively remote areas.

However, the continued deterioration of Covid situation and resulting lock downs remain a risk, according to the rating agency.

Furthermore, unlike the first wave, there is no nationwide lockdown and only localised lockdown/restrictions with exemption for construction activities. Nevertheless, projects which are located within the urban areas such as metro-rail projects, building construction etc are likely to feel a greater impact due to localised restrictions and reverse migration of labour.

Prior to the second wave of Covid-19, the construction sector had started witnessing strong recovery and pace of execution had crossed the pre-Covid levels as reflected in the construction GVA growth of 6.2 per cent in Q3 FY2021, and estimated growth of 8.4 per cent in Q4 FY2021.

Abhishek Gupta, Assistant Vice-President and Sector Head, ICRA, said: “the Government is not considering nation-wide lock down yet, given the severe economic fallout of disrupting major economic activities. With this, the reverse migration of labour has also been significantly lower thus far, compared to that witnessed during the first wave.”

The recent sharp spike in the Covid-19 cases does increase the risk of restrictions on construction activities at the localised level and curtail labour availability at project sites, which could cause short-term disruptions in construction activities.

ICRA expects recent disruptions to be limited and short-tenured, and hence has not revised its revenue growth estimates of 15-20 per cent for FY2022.

Companies which are focussed on construction of real estate projects would witness a higher impact, given that most of these projects will be in metro/large cities where the risk of labour migration and localised lockdown could constraint their execution.

Published on April 26, 2021

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