The order inflow for construction sector has been robust over the last few years, supported largely by increased Government spending towards infrastructure. As a result, the order-book position of most of the construction players is currently adequate to provide medium term revenue visibility.
The construction companies are likely to witness significant opportunities from the railways, ports, urban infrastructure and airport segments. In the Railways segment, besides the core railway capex (doubling, new lines, signalling, electrification, etc), the station redevelopment, and the recently announced bullet train project is expected to provide significant opportunities to the construction companies. Similarly, in the road sector, adequate pipeline of projects for development/upgradation of the national highways and state highways exists. The Bharatmala Pariyojana project itself is expected to provide large opportunities for the construction sector as the programme is the largest road development programme in India with a planned investment of Rs. 5.35 trillion.
With a huge pipeline of projects to be awarded in the infrastructure sector, ICRA expects the new order inflows for construction companies to remain healthy, albeit there can be a slowdown in the pace of order tendering in the months closer to the Lok Sabha general elections due to be held in April/May 2019. Besides this, delays in land acquisition also remains a risk to new order inflows, particularly in the transportation infrastructure sector. The order inflows from non-infrastructure segments like industrial and real estate (excluding affordable housing segment) is expected to remain muted, with weak private sector capex growth.
On the execution front, being an election year, ICRA expects strong focus on execution which along with healthy order-book should support growth in operating income of construction companies in the first half of CY2019, though it could witness moderation post elections till stabilisation of new Central Government. Furthermore, many road projects awarded in 2018 and awaiting appointed date are likely to start execution in CY2019, which will support execution. However, construction companies which have leveraged balance sheets and stalled or slow-moving projects, would continue to face challenges.
