Road building orders 15% growth record

    Riding high on the back of the huge government’s spending in the road sector, the order book of 50 companies constructing highways on EPC mode may touch Rs.1 lakh crore and their top line is set for 15% growth this fiscal, rating agency Crisil recently disclosed. Driven by the Transport ministry and the National Highways Authority of India (NHAI), over 80% of the highway projects in past three years have been bid out under the hybrid or engineering, procurement, construction (EPC) model. Not surprisingly, 50 road EPC companies rated in the investment grade by Crisil, have benefited from the trend and delivered 20% compounded annual growth in revenue in the past three years. This, along with better working capital management and capital structure, sharp focus on execution, and judicious bidding have led to a significantly improved credit ratio or ratio of upgrades to downgrades - at 2.0 last fiscal, up from 0.11 in fiscal 2014. 80% of these companies have revenues below Rs.1,000 crore. In contrast, many large diversified EPC players are yet to wade out of the credit profile morass they entered in the past because of aggressive bidding, leveraged balance sheets, policy bottlenecks and a sluggish economy. Senior Director, Crisil Ratings, Sachin Gupta said that companies are expected to maintain their revenue growth momentum this fiscal, fuelled by a strong order book of Rs.85,000 crore as of fiscal 2017 end, and expected order book-to-revenue ratio of 3 times this fiscal.
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