Revenue Growth Forecast for Construction Industry Lowered to 6-8% for FY26: ICRA
ICRA has lowered its revenue growth forecast for India’s construction industry in FY2026 to 6-8%, down from the earlier estimate of 8-10%, citing delays in road project awards and a slowdown in Jal Jeevan Mission execution. However, a likely pickup in urban infrastructure and irrigation projects is expected to support moderate growth, improving on the flat performance seen in FY2025. The agency notes that the order book-to-operating income ratio remains strong at 3.5x as of March 31, 2026, offering healthy revenue visibility. Operating margins are projected to stay stable at 10.25-10.75%, down from peak levels of 13-14% in FY2021.
Giving more insights on this, Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA, said, “The order inflows in FY2025 registered a YoY decline of 19%, primarily impacted by the General Elections during H1 FY2025. The contractors, focussed largely on the road segment, are likely to under-perform, compared to broader trends owing to the slowdown in order-awarding activity from the MoRTH/NHAI. Several mid-sized road construction entities have order book/revenue of less than 2.0 times, indicating imminent stress on their revenue prospects in FY2026, far below the industry average of around 3.5 times. However, players focussed on segments like urban infrastructure or energy sector are expected to sustain double digit revenue growth in the current fiscal.”
Majority of the road projects under the MoRTH/NHAI were awarded at a sizeable discount compared to the authority’s base price, indicating accentuated competition. The competition for other sectors (Metro, and Water Supply and Sanitation) has also intensified, with new entrants trying to diversify their order book. ICRA expects the operating margin of the players to remain under check, given the aggressive competition, although stable commodity prices and operating leverage benefits should provide some support to profitability.
“The cash conversion cycle has elongated in FY2025 with the expiry of the Atmanirbhar Bharat relief measures and elongation in payments under the Jal Jeevan Mission. While debt levels are likely to increase to support the higher working capital requirements, the corresponding operational leverage benefits are projected to keep the interest cover adequate at 3.5-3.8 times in FY2026e. Given the moderate leverage and satisfactory debt coverage metrics, ICRA maintains a Stable outlook on the construction sector,” Banerjee reiterated.
Construction activities, particularly road projects, had been notably affected due to lower fresh order inflows following the enforcement of the Model Code of Conduct in Q1 FY2025, coupled with execution related challenges due to an extended monsoon season, and a transition to milestone-based billing.
