Road builders' revenue may rise 15 pc this fiscal but margin to dip 100-150 bps: Report

Despite a likely 15 per cent increase in their revenue this fiscal, road construction companies are set for a 100-150 basis points (bps) margin compression on higher input costs, according to a report.

The credit profiles of road engineering, procurement and construction (EPC) companies also look to be stable given healthy order books and de-leveraged balance sheets, a report by Crisil said on Tuesday.

Strong order execution will swell the revenue of road builders by 15 per cent this fiscal compared to a low 5 per cent in the pandemic-marred last fiscal. But, higher input cost and increasing competition will have operating profitability moderating 100-150 bps on-year, the report said.

But, healthy order books, healthy balance sheets and steady cash accruals will support steady credit profiles, said Crisil, based on the analysis of 18 large road EPC developers with cumulative turnover of Rs 65,000 crore.

With fewer restrictions on construction activities during the second wave, road project execution was not impacted as severely as during the first wave. This manifested in healthy revenue growth of 37 per cent year-on-year in the first half of this fiscal, albeit on a significantly weak base of last fiscal.

While overall revenue is expected to grow 15 per cent this fiscal, operating margins are likely to moderate to 14 per cent from 15.3 per cent last fiscal, due to a sharp jump in prices of bitumen, steel, cement and fuel, the report said.

Going forward, a possible third wave is unlikely to disrupt performance materially as players have vaccinated a significant proportion of their workforce and have put in place systems and processes to navigate labour and supply-chain challenges. Also, curbs on construction activities are unlikely to be severe hereon.

Despite the pandemic, national highway awarding rose 23 per cent year-on-year last fiscal to 10,965 km. This fiscal again, 4,900 km was awarded till October and is expected to be around 11,000 km for the full year. Consequently, the order book-to-revenue ratio of EPC players stands strong at 3.4 times.