Regulatory issues hit profits of construction sector but 100% FDI to come to rescue: report

The finding was part of Dun & Bradstreet India's report titled 'India's Leading Infrastructure Companies 2014'

Regulatory delays, lack of financing and increase in cost of raw materials has led to profits of the construction sector decline by 28.5% in FY14. According to Dun & Bradstreet India’s research note, ‘India’s Leading Infrastructure Companies 2014’, the decline is largely attributed to a sharp 17.6% rise in the sector’s interest costs, on increasing debt levels.

The study shows that the construction sector’s debt rose by a sharp 14.8% in FY14. This was over and above a 12.7% rise in borrowings in FY13. Accordingly, the sector’s debt-equity ratio rose to 0.97 times in FY14 from 0.87 times a year ago. With the additional finance coming at very high cost, the sector found itself hard pressed to meet its debt servicing obligations.

Apart from dearth of financing, the report highlighted that the ebb in construction activity was largely due to delays caused by difficulties in securing clearances, land acquisition problems.

The study was conducted on a sample of 93 companies having a stand alone total income of more than Rs 100 crore and involved in involved in the execution of heavy projects such as roads and highways, bridges, tunnels, railways, ports, airports, and urban infrastructure, and real estate companies engaged in construction of residential buildings, townships, commercial complexes, SEZs, and IT parks.

Lauding the steps taken by the government and the RBI, the report said 100% FDI in construction would alleviate the financing needs of the sector.

“The government and the RBI are also mulling the introduction of a slew of measures to meet the capital requirements of the sector. One such move is the exemption of bank bond issuances from regulatory requirements such as the cash reserve ratio, the statutory reserve ratio and priority sector lending, provided the bonds are issued to finance infrastructure,” said the report.