In the current environment, execution challenges are expected to persist and the revenue growth rates of construction companies could continue to remain muted, according to ICRA report.
Most construction companies had ventured into the asset-ownership space by undertaking PPP projects under build-operate-transfer (BOT) mechanism through special purpose vehicles (SPVs).
ICRA expects revenue pressures to continue in H1FY15 post which the improvement in investment cycle could be closely linked to the election outcome and perceived stability of the new Government.
Combination of falling operating profitability, challenges in executing order book, lower mobilization advances and longer cash conversion cycle has led to weak cash-flows from core construction business. This, coupled with the need to support the asset-ownership business has resulted in an increase in debt levels and dented net profit margins on account of increased interest costs. The impact of these factors is evident from the aggregate financial indicators for ICRA sample companies which indicates a 12% y-o-y increase in standalone debt levels and a 42% y-o-y decline in cash accruals for FY13 resulting in stressed debt coverage metrics, the report said.
The FY13 targets set for most infrastructure sub-sectors were not achieved; in the roads sector NHAI was able to award just 15% of its targeted ~7,500 kilometres amid dwindling interest from private sector participants coupled with increasing difficulties in achieving financial closure; relatively less remunerative stretches in the offering and delays in environmental clearances and land acquisition.
The power sector continues to face multiple concerns relating to mine development permissions, fuel supply shortages, precarious financial health of distribution utilities, delays in finalization of standard bidding documents for power procurement and lack of fresh power purchase bids by state distribution utilities. In the ports sector a total of 32 projects aggregating Rs. 67.6 billion were awarded in FY 2013 -a healthy growth over the three projects awarded in FY 2012, though this fell short of the planned target of 42 project awards for FY13.
"Nevertheless, construction companies could witness business opportunities in the railways, ports, urban infrastructure and airports sectors," ICRA added.
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