The revenue of diversified engineering, procurement and construction (EPC) companies are set to grow by 12-14 per cent this fiscal, stated a report by CRISIL Ratings. This, it added, will be driven by healthy order books with a mix of domestic and international orders, and steady pace of execution in the infrastructure sector. That follows an average annual growth of 10 per cent in five fiscals through 2024.
CRISIL Ratings analysed 13 large and 162 small and mid-sized diversified EPC companies with an estimated aggregate revenue of around Rs 3.5 lakh crore last fiscal (one-third of India’s total construction investment), to furnish the data.
Healthy awarding and capital outlay for the infrastructure segments by both the Center and the states have led to strong revenue growth and sustenance of healthy order book (estimated at 3.2-3.5 times the fiscal 2024 revenue as of March 2024) for diversified EPC companies over the past three fiscals.
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According to CRISIL, the government push for infrastructure growth, along with increase in public-private partnerships will play a key role in supporting domestic revenue growth this fiscal. It further added that companies having diversification into other geographies will support overseas revenue growth. Meanwhile, the share of overseas orders has increased to approximately 25 per cent of the current order book from around 15 per cent five years back.
“Overall investment in the infrastructure sector is likely to grow 12-14 per cent this fiscal, driven by continued momentum in the budgetary outlay by the Centre and states and pick-up in the private sector. The share of private investments is expected to increase to ~12 per cent this fiscal from ~9 per cent estimated last fiscal, driven by revival of the build-operate-transfer mode in the roads sector and increased private participation in the capacity additions in power segment,” said Gautam Shahi, Director, CRISIL Ratings.
The operating margin, which declined to 8.0-8.5 per cent over the past three fiscals from early double-digits in the previous fiscals, is estimated to have bottomed out with near completion of the low-margin, competitively bid legacy orders. The margin is expected to improve to 8.5-9.0 per cent this fiscal, driven by steady prices of inputs such as steel and cement, and execution of high-margin overseas orders, even as high competition in some sectors may be a drag.
“Overall, credit metrics are expected to remain stable this fiscal amidst healthy operating performance and moderate debt. Net debt for the sample set, which remained steady despite near doubling of revenue over the past three years, is likely to remain stable this fiscal, too, as cash accrual should be adequate for capex, equity investments and incremental working capital requirements,” said Snehil Shukla, Associate Director, CRISIL Ratings.
Per the report, any major increase in commodity prices due to geo-political tensions and stretch in the working capital cycle on account of delay in payments by counterparties will bear watching.
From: financialexpress
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