ICRA Forecasts 12-15% Revenue Growth for Indian Construction Firms in FY25

ICRA expects Indian construction companies to achieve healthy revenue growth of 12-15% in FY2025, driven by a strong order book and the Government’s focus on infrastructure development. As of June 2024, the sample set of companies analyzed by ICRA had an aggregate order book-to-sales ratio of 3.1x, indicating robust growth prospects for the medium term.

Chintan Lakhani, Vice President and Sector Head - Corporate Ratings, ICRA, said, “The fresh order inflows remained modest during Q1 FY2025, mainly due to the General Elections, similar to the FY2020 election period. Order-awarding activity has picked up from Q2 FY2025 onwards; nevertheless, the order inflows in FY2025 are likely to slightly trail those seen in FY2024e. Order inflows in the road segment have remained muted during the last three to four quarters; however, in other segments like urban infrastructure, drinking water, and sewage treatment projects, the inflows continue to remain healthy."

ICRA noted that competition has increased across sub-segments like railways, roads, irrigation, and urban infrastructure in recent years. However, road projects awarded by MoRTH/NHAI are facing greater competitive pressure, which is also reflected in the majority of bids being awarded at a sizeable discount compared to the authority’s base price. Consequently, despite healthy revenue growth expectations and the resultant operating leverage benefits, operating margins are expected to remain flat at around 11% ± 25bps in FY2025e. ICRA maintains a Stable outlook for the sector, with steady growth in operating income, moderate leverage, and comfortable coverage metrics.

“The Atmanirbhar Bharat scheme, introduced in June 2020, provided relief to contractors during the Covid-19 pandemic (in the form of monthly billing frequency, lower bank guarantee requirements, among others), which eased the funding requirements. ICRA expects the cash conversion cycle to elongate in the current fiscal, following the expiry of Atmanirbhar Bharat scheme-related relaxations in March 2024. While debt levels are expected to increase to support higher working capital requirements, the corresponding operational leverage benefits are anticipated to keep the interest coverage ratio at around 3.6-3.9 times in FY2025e," Lakhani added.