Rating agency bets big on construction sector

Painting a rosy picture of the country’s construction and infrastructure, Ratings and Research (Ind-Ra) in a recent finding has maintained a stable outlook for the construction sector for the new fiscal. It concluded that the accelerated revenue growth largely due to increased spending by the government will go a long way pushing the performance of the infra sector to new highs. However, the sector credit profile would witness a gradual recovery, as benefit of EBITDA expansion will be partially offset by expansion in working capital cycle due to higher scale of operations. Ind-Ra expects a further improvement in the rating headroom in FY19 as companies in Ind-Ra's portfolio continue to record higher EBITDA and generate free cash flow. Credit profile of some of the issuers is at the higher end of the rating level, reflecting sufficient headroom to maintain the rating through the cycle. It further claimed that order inflows will continue to improve in FY19, driven by higher orders from transportation segment, led by an increase in engineering, procurement and construction contracts for roads as well as urban infrastructure projects, while order inflow from the industrial segment is unlikely to revive. Construction companies would continue to exercise bidding discipline owing to their need to protect margins and reduced competition levels for large projects.