BW Businessworld

‘Growth of Metro Rail Network In New Cities Has Opportunity For Construction Sector’

Development of the Metro Rail is being planned in over 30 Indian cities, most of which have a population of over 1 million

Photo Credit : Reuters,

The Metro Rail sector (MRS) has seen strong traction in the last couple of years and is expected to provide sizeable opportunities for construction companies over the next three to five years due to a strong pipeline of projects which are in the approval/planning stage.

Development of the Metro Rail is being planned in over 30 Indian cities, most of which have a population of over 1 million. Currently, the metro rail network (MRN) is operational/partly operational in nine cities and another five cities have under-implementation metro projects.

In addition to the extension of the MRN in these cities, a new Metro Rail is to be developed in another 15-20 cities. The overall cost of expansion of operational/ under implementation approved metro projects is over Rs 2.5 lakh crore, thus supporting the order books of construction contractors.

Further, Metro Rail projects (MRP) worth another Rs 2 lakh crore are in various stages of approvals and are likely to come up for bidding within the next five years. This is expected to boost the order book of construction companies by Rs 75,000-90,000 crore over the next three to five years.

According to Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA “The PPP participation in metro rail projects has been limited thus far, to encourage PPP would require adequate risk allocation in the concession agreements, availability of the low cost debt funding, and the presence of a robust dispute resolution mechanism.”

Many large Indian construction companies have taken up projects in the MRS, while ITD Cementation has bagged highest number of EPC projects, L&T has exposure to both EPC and PPP contracts and is developing the largest metro rail PPP project (Hyderabad Metro).

Other companies like Afcons, NCC, and IL&FS Group also have sizeable metro contracts.

MK Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA, said “Roads and urban infrastructure, including Metro Rails are two key segments which have witnessed robust order inflows for the construction companies. Further, with sizeable pipeline of projects in these segments, the construction sector is expected to have sufficient order inflows and companies with strong track record and healthy balance sheet are expected to exhibit strong growth going forward.”

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