Abhishek Gupta, Assistant Vice-President, Corporate Ratings, ICRA, informed that while the construction activities started since April 20, 2020, labour availability and supply chain logistics had been a major challenge, and this will reflect in the Q1 FY2021 performance. Though execution has been picking up, challenges remain and with the monsoons' impact in Q2 FY2021, execution is expected to ramp up only from H2 FY2021, provided the Covid-19 pandemic remains under control.
As the pandemic situation is still evolving the extent of the impact remains uncertain, though the credit coverage ratios are likely to moderate in the near term. With lower execution, operating income and profits of construction companies are likely to see a decline in Q1 FY2021. Due to low operating and financial leverage, most construction companies are better placed to withstand this short-term disruption. The relief measures taken by the Government will support liquidity and recovery of the construction companies. The relief measures announced by the Government, including the six months moratorium for repayment of loans and deferment of interest payments, the release of retention money and the bank guarantees on a pro-rata basis have been a relief. The extension of timelines, allowing a grace period for payment of Government duties and taxes, a faster payment cycle and the reduction in the interest rates is expected to support the liquidity position of the companies.
Some state governments are likely to reduce investment in infrastructure in FY2021 to tide over the additional cost burden arising from the situation. Contractors working for private sector clients also carry the risk of their clients cutting down or going slow on the CAPEX, given the demand situation, particularly in the industrial segment. For these projects even after resolution of labour issues, the pick-up may not be immediate but contingent upon end-user demand prospects of their clients and the fund availability with clients. The Central Government projects are likely to fare better with the increased borrowing plan of the Government which can help support the infrastructure spending in the short-term. Over the medium term, the order book of companies in the infrastructure segment is expected to grow, supported by the strong national infrastructure pipeline, which envisages a scale-up of infrastructure investments till FY2025.
