Revenue Growth For Road Engineering Companies Can Slow Down To 5–7% In Coming Fiscal
Delays in approving project cost estimates, model code of conduct curbs, and transition-related issues are attributed as reasons for the slowdown.
Revenue growth for road engineering, procurement, and construction companies is anticipated to slow down to 5–7% in the upcoming fiscal, according to Crisil Ratings.
The rating agency said that the slowdown will be due to a decline in national highway projects affecting their order books.
However, Crisil Ratings stated that the credit profiles of these companies are expected to remain stable despite this, due to consistent operating profitability and strong balance sheets.
Manish Gupta, senior director at Crisil Ratings said that revenue growth is expected to be affected both this fiscal and the next, following a compound annual growth rate of 13% over the past five years.
The Ministry of Road Transport and Highways awarded an average of 12,500 km of projects annually between fiscals 2022 and 2023. However, this figure fell to 8,581 km last fiscal and is projected to remain modest at around 8,000 km this fiscal.
The slowdown is attributed to several factors like procedural delays in approving project cost estimates, restrictions imposed by the model code of conduct during elections, and transition-related issues as the government shifts towards the build-operate-transfer toll model for future projects, in addition to the existing EPC and hybrid annuity model.
However, it said there would be some respite as prices of key raw materials—steel and bitumen—are down 5–17% from their peaks in fiscal 2023.
"Since most projects are awarded on fixed-price basis, this will keep operating profitability steady at 13–14% even after factoring in increased competitive intensity at the time of awarding of these projects," it said.
Consequently, Crisil Ratings said cash accrual is expected to be stable.
Going forward, while highway projects with a total length of 936 km were approved by the Cabinet Committee on Economic Affairs recently, timely approval of additional projects and their awarding will be essential for the sector, it said.
(With Inputs From PTI)
