India’s construction industry is expected to witness a healthy revenue growth in the medium term, ICRA said in a report. It said the construction Gross Value Added (GVA) is expected to grow at 9-11% in FY2023, owing to the government’s emphasis on infrastructure development, a robust order book, and a low base effect.
ADVERTISEMENT
“The aggregate order book-to-sales ratio of ICRA’s sample of 12 entities stands at around 3.2 times, thereby indicating a strong revenue growth prospect over medium term,” the credit rating agency said.
While roads and buildings continue to account for a bulk of the order book, metro/urban infrastructure, water and sanitation have seen a significant expansion in the order book in recent years.
ADVERTISEMENT
But the sharp increase in commodity prices, along with increased competition, will have an adverse impact on industry profitability, with anticipated decline in operating profitability by 100-200 basis points in the current fiscal, it said.
Abhishek Gupta, Sector Head & Assistant Vice President, Corporate Ratings, ICRA, said: “Over the last five years, the order book of sample construction companies has increased at a CAGR of 12% remaining between 3 times and 4 times of billing, supported by increased capital outlay towards the infrastructure sector by the Central and state governments.”
“Growth was much higher for some mid-sized entities, which scaled up significantly during this period as the relaxations in bidding criteria during Covid increased their ability to bag orders. Some larger companies were also able to expand their order book at a robust pace during this period,” he said.
Supported by a strong order book pipeline, ICRA expects the industry’s revenue to grow 12-14% during FY2023e. Going forward, order inflows in the roadways, railways, and drinking water sectors are likely to be healthy, supported by increasing allocations from the government,” he added.