Construction Entities To Post Strong Revenue This Fiscal

Aided by an adequate order book position and the government’s thrust on infrastructure activity, the Indian construction entities are expected to maintain healthy revenue growth in FY2025e with a projected year-on-year (YoY) growth of 12 to 15 per cent in this fiscal year, according to a report by Icra.

However, the report stated that aggressive competition amongst players will constrain margin recovery, despite healthy revenue growth expectations. The competition has increased across sub-segments like railways, roads, irrigation as well as urban infrastructure in recent years.

“The fresh order inflows remained modest during Q1 FY2025, mainly due to the General Elections, akin to the FY2020 election period. The order-awarding activity has picked up from Q2 FY2025 onwards; nevertheless, the order inflows in FY2025 are likely to slightly trail those seen in FY2024e,” stated Chintan Lakhani, Vice President and Sector Head - Corporate Ratings, Icra.

The aggregate order book-to-sales ratio of ICRA's sample set of companies was 3.1x as of June 2024, thereby indicating healthy revenue growth prospects over the medium term.

“Icra expects the cash conversion cycle to elongate in the current fiscal, post-expiry of Atmanirbhar Bharat scheme-related relaxations in March 2024. While debt levels are expected to increase to support the higher working capital requirements, the corresponding operational leverage benefits are anticipated to keep the interest cover at around 3.6 to 3.9 times in FY2025e,” Lakhani added.

Icra maintains a Stable outlook for the sector with steady growth in operating income, moderate leverage, and comfortable coverage metrics. Despite healthy revenue growth expectations and resultant operating leverage benefits, operating margins are expected to remain flattish at around 11 per cent in FY2025e, as per Icra.