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Emerging diversified construction companies in India are expected to post 9-11% revenue growth this fiscal, according to a recent Crisil report. The sector recorded a 15% CAGR over the past five years, supported by strong order books and timely project execution. However, operating margins are likely to remain constrained at 10-11% due to limited ability to absorb commodity price fluctuations and rising competition. While working capital needs have increased, firms are meeting these requirements through internal cash flows, keeping reliance on bank borrowings low. Capital expenditure for large order execution will involve debt, but robust cash flows should help maintain healthy leverage. Crisil's analysis of 200 firms-contributing INR 1 lakh crore to India's infrastructure spend-highlights steady growth underpinned by government-led infrastructure investments and diversified order books. Profitability, however, will face pressures amid stable subcontracting costs and competitive market dynamics.
According to a recently published report by Crisil, emerging diversified construction companies are projected to post stable growth in the ongoing fiscal, with revenue expected to rise by 9-11%. The rating agency noted that this comes on the back of a robust compounded annual growth rate of 15% seen over the past five financial years up to now. Advertisement
Crisil attributed this steady upward trajectory to the strength of order books, which have benefited from the timely execution of projects. These timely completions have reinforced the reputation of such companies, enabling them to expand operations further.
The agency observed that while these firms will continue to see revenue expansion, their ability to fully absorb sharp fluctuations in commodity prices remains limited. Combined with heightened competition in the sector, this is likely to constrain operating margins within the range of 10-11%.
Despite increased working capital needs compared to the previous year, Crisil indicated that these requirements would largely be met through enhanced internal cash flows and prudent risk management. As a result, reliance on bank borrowings tied to working capital is expected to remain minimal.
The execution of large-scale order books is likely to require capital expenditure funded through debt, particularly for equipment acquisition. However, robust cash flows are anticipated to keep leverage ratios in check, thereby sustaining credit quality.
Crisil's findings are based on an analysis of 200 emerging diversified construction companies that collectively posted estimated revenues of around INR 1 lakh crore in the previous fiscal-roughly accounting for a tenth of India's total infrastructure expenditure.
Rahul Guha, Senior Director at Crisil Ratings, noted that the government's sustained focus on infrastructure and improved funding avenues are crucial growth enablers for these firms. He also pointed out that diversification within order books should help these players achieve another year of steady revenue growth. Nonetheless, profitability is expected to remain largely unchanged due to ongoing competitive pressures and stable subcontracting expenses.
The sector appears to be adapting through internal cash flow optimisation and cautious borrowing, signalling maturing financial discipline. While the topline expansion may continue, stakeholders would be wise to watch profitability trends and capital allocation strategies closely in the coming quarters.
Source - PTI
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