Execution delays to hamper construction industry recovery: Care

In spite of a huge order backlog in the construction industry giving a visibility of decent revenue growth over the next two years, execution delays due to liquidity constraints and weak business environment is likely to hamper growth of the sector, says a report.

Due to the economic slowdown, policy impediments, high interest rates and liquidity concerns, no new projects are being announced across various infrastructure segments, which resulted in a slowdown in order inflows to construction companies, rating agency Care said in a report.

Apart from the slowdown in the order inflow, the construction industry has been struggling with the problem of delay in project execution, it said.

"The proportion of orders executed to the order backlog at the beginning of year for the construction industry came down from 57% in FY09 to 47% in FY13.

"This delay in execution has adversely affected the revenue growth of the construction industry," the report said. Care expects the revenue growth in the range of 3-4% in FY14 and FY15.

The delay in execution is mainly attributable to the issues related to land acquisition and environment clearances coupled with the liquidity crunch, it said.

According to the report, aggregate revenue of the industry grew marginally by 4% on an annual basis in FY'13.

The order backlog to sales multiple declined from 3.4 times in FY'11 to 3 times in FY'13 mainly on the back of slowdown in the order inflow.

"In the last couple of years, the construction industry had witnessed a declining trend of profitability margins. The slowdown in the revenue growth coupled with the increased raw material cost, subcontracting and employee cost had kept the margins under pressure in FY13," it said.