Road construction firms to see negative growth of 8-10% in revenues this fiscal: CRISIL

New Delhi: The corona pandemic and the lockdown will result in negative growth of 8-10 percent in revenues of highway EPC companies in the current fiscal, according to a report by rating agency CRISIL.

There was already lower awarding of highway projects by NHAI in the last two financial years and in tnhis fiscal, the lockdown will result in severe knock down of the revenue of the companies engaged in engineering, procurement and construction (EPC) of highways. The labour shortage for the construction activity will further accentuate the problem. 

The road EPC companies witnessed zero execution and thus zero income in April. But these companies had to bear fixed costs like the establishment costs and employees’ salaries. These expenses account for around 12 percent of the revenues. The site, on the other hand, were operating at 50 percent efficiency for the most parts of May. This will result in operating margins declining as much as 200 bps to about 12 percent in this financial year. 

The operations of the companies is expected to become normal only after monsoon, that is by October as migrant labour is expected to return to construction sites by then. The speed and rate of recovery will largely depend on the time it will take to get control on the corona pandemic.

However, this stalling f the works and the hit on the revenues of the companies is unlikely to have an effect on the credit profiles of the firms on account of their strong balance sheets. 

The credit ratio (rating up-grades to downgrades) for the road construction companies may go down below 1 time, a situation that was last seen in financial year 2014.

 

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