ICRA Report: Construction Industry to see an uptrend in new order inflows.

With a growing number of projects in the infrastructure market, new order inflows for the construction companies will increase in 2020, rating agency Icra said on Tuesday. Nevertheless, Icra has given a positive view for the construction sector, noting that land acquisition delays, financial issues and state government preferences pose a threat to new order inflows.

“Icra has given a positive forecast for the construction industry, where Icra expects new orders for construction companies to boost in CY (calendar year) 2020, with a wide pipeline of projects to be awarded for the infrastructure sector,” he said.

With the government aiming to double infrastructure investments to about Rs 100 lakh crore in the next five years, construction companies are likely to see big opportunities with key segments including highways, railways, ports, urban infrastructures and airports.

In the rail sector, the station reconstruction should provide construction companies with substantial opportunities in addition to the main railway Capex (doubling, new tracks, signalling, electrification, etc), the report said. Likewise, there is a full pipeline of national and state highway construction/improvement projects in the highway sector. It is expected that the Bharatmala Pariyojana itself will provide the construction sector with significant opportunities as the program is India’s largest road development programme.

Demand inflows from the non-infrastructure sector (excluding the affordable housing segment) such as industrial and property are expected to remain silent, with low private sector growth Capex, it said.

Over the last few years, there has been a steady inflow of orders in the construction sector, backed by increased government infrastructure spending.

“H1-FY2020, however, has seen lower new order inflows and cancellations of some orders in Andhra Pradesh, leading to a decline in order books for some players. However, the order book position of most construction players is currently sufficient to provide visibility of medium-term revenue,” Icra said.

On the implementation front, Icra anticipates that a healthy order-book will encourage growth in Construction Company operating income in the first half of 2020, but it could be modest if new orders are weakened.

Furthermore, construction companies that have leveraged their finances and projects that have stalled or slow-moving projects will continue to face obstacles.

As for financial health, the effects of healthy growth and sustained implementation are expected to remain constant with operating profitability, even though this is contingent on any major volatility in the cost of raw materials and labour. However, the market for Capex and working capital requirement could swallow most of the cash collections.