New Delhi, Jan 5 : Adequate order book position, along with strong pipeline of projects and government measures, are expected to boost construction companies’ performance in FY22, ICRA said on Tuesday.
The ratings agency said the outlook on the construction sector in FY22 is stable and credit profile of players are likely to recover after weakening in FY21.
Besides, ICRA pointed out that investments planned under the National Infrastructure Pipeline will be key growth drivers for the sector.
“While the pandemic-related uncertainties continue to remain, execution has recovered sharply in the last few months.
“ICRA expects the pace of execution to improve over the medium term, supported by adequate orders in hand as well as the recent measures taken by the government,” it said.
As per the ratings agency, the order book position of most construction players is currently adequate, which provides medium term revenue visibility.
ICRA expects the new order inflows for construction companies to remain healthy in FY2022.
“However, delays in land acquisition, funding issues, and state government priorities remains key risks to the new order inflows.”
“The order inflows from non-infrastructure segments like industrial and real estate is expected to remain muted, with weak private sector capex growth.”
Furthermore, strong operating profitability is expected to remain stable with the benefits of improved execution scale; though this would also be dependent on any steep variation in key raw material and labour cost and increased competitive intensity.
“The working capital cycle for the larger construction players has remained at higher level in the past, owing to slow realization of receivables, and slow-moving legacy projects.”
“This has been met partly by higher creditors, thus percolating to sub-contractor’s working capital cycle as well. Some of the recent measures taken by the Central Government are helping companies involved in such projects by way of faster bill realisation and lower Bank Guarantee (BG) requirements.”
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