Higher govt capex to help infra companies clock 17-20% revenue growth next fiscal
The revenue growth of most of the EPC players is driven by the rise in capital outlay by the Centre, public sector undertakings and states for the infrastructure segment and the corresponding construction intensity in each of the infrastructure segments.
Higher government spending on infrastructure in FY24 will propel engineering, procurement, and construction companies to hit revenue growth of 17-20 per cent, taking their profit to the pre-Covid level, a report said on Tuesday.
In the Budget 2023-24, the government has increased the outlay for capital expenditure (capex) on infrastructure sector by 33 per cent from Rs 7.5 lakh crore to Rs 10 lakh crore.
Forecasting higher revenue and thicker bottom-line, rating agency Crisil in a report also placed their credit outlook positive citing improving debt metrics.
The optimism is supported by the expected strong order inflows due to the government thrust on infrastructure in the latest budget.
Profitability of large EPC (engineering, procurement, and construction) companies is seen improving and reaching pre-pandemic levels of 10-10.5 per cent next fiscal compared to 9-9.5 per cent this fiscal, with commodity prices easing.
Also Read: Explained: Delhi-Mumbai expressway is a gamechanger - here's why
With healthy order books and recovery in profitability, debt metrics will also improve next fiscal as higher order inflows will boost their top-line to the tune of 17-20 per cent in fiscal 2024, up from 13-15 per cent estimated this fiscal, said the report which is based on an analysis of 80 EPC companies with aggregate revenue of Rs 2.33 lakh crore.
The revenue growth of most of the EPC players is driven by the rise in capital outlay by the Centre, public sector undertakings and states for the infrastructure segment and the corresponding construction intensity in each of the infrastructure segments.
According to Mohit Makhija, a senior director with the agency, focus on the infrastructure space has increased with investments in roads and railways, which is expected to grow 21 per cent and 15 per cent on year, respectively, supported by the Centre's as well as states' capital outlay. This, along with healthy execution, will lead to higher revenue growth of 17-20 per cent for players in the sector next fiscal. Roads and railways will continue to outperform other EPC segments.
With infrastructure investments continuing to grow and focus on the National Infrastructure Pipeline (NIP) through investments in roads (contributing 23 per cent of NIP), railways (16 per cent), power (22 per cent), irrigation (9 per cent), EPC firms are seeing healthy order inflows. As a result, their order book-to-revenue ratio is expected to remain healthy at 3.5-4 times over the medium term, leading to better revenue visibility.
According to Gautam Shahi, a director with the agency, higher revenue growth and softening commodity prices will help operating profitability recover to the pre-pandemic level next fiscal. Prices of key inputs such as steel, which have fallen 22 per cent from their peak in March 2022, and should decline another 9-11 per cent next fiscal. This will support recovery in operating profitability, especially for fixed-price contracts that account for 25-30 per cent of the sample companies' revenue.
Catch latest stock market updates here. For all other news related to business, politics, tech, sports and auto, visit Zeebiz.com.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
Power of Compounding: How many years will it take to reach Rs 3 crore corpus if your monthly SIP is Rs 4,000, Rs 5,000, or Rs 6,000
IRCTC Dividend 2024: Railway PSU announces 200% interim dividend - Check record date and other details
Power of Compounding: Salary Rs 25,000 per month; is it possible to create over Rs 2.60 crore corpus; understand it through calculations
Reduce Home Loan EMI vs Reduce Tenure: Rs 75 lakh, 25-year loan; which option can save Rs 25 lakh and 64 months and how? Know here
New Year Pick by Anil Singhvi: This smallcap stock can offer up to 75% return in long term - Check targets
PSU Oil Stocks: Here's what brokerage suggests on these 2 largecap, 1 midcap scrips - Buy, Sell or Hold?
04:43 PM IST