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 2012-13 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 the second quarter, 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.
“We are seeing order inflows mainly from the infrastructure sector which includes development of roads, ports, railways, buildings, etc. But we are not expecting an improvement so far as the orders coming from the power sector is concerned,” L&T chief financial officer R. Shankar Raman had said announcing the September quarter earnings on Monday.
Execution concerns have intensified as reflected in the elevated quantum of stalled projects and declining year-on-year growth rate of projects under implementation. This has moderated the year-on-year revenue growth rates of construction companies, Icra said in its report.
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 report said.
Most construction companies have ventured into the asset-ownership space by undertaking PPP project under build, operate, ransfer mechanism through special purpose vehicles. But these companies are facing challenges of liquidity, notes the report.
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.