EPC companies raise concern over longer payment cycles for water projects

Industry executives add payments picking pace in Q4

The country’s engineering, procurement and construction (EPC) firms have highlighted longer payment cycles, and related working capital cycle deterioration in the water segment.

 

With the election season ending and an extension and budgetary allocation for the Jal Jeevan Mission scheme, industry executives see this as a short-term pain, with payments picking pace in the March-2025 quarter.

 

“Since funds were stopped for some time with respect to water projects funded under the Jal Jeevan Mission, there were some stoppages,” said a senior executive from Larsen & Toubro (L&T), in a post earnings call in January, adding, the fund flow started December onwards and they “expect a revival in momentum to happen."

 

According to Puja Jalan, director, CareEdge Ratings, the payment cycle under the Jal Jeevan Mission (JJM) was previously 2-3 months but has now stretched to 4-5 months during FY25.

 

Those at KEC International in a recent analysts’ call noted their receivables for this sector are over Rs 500 crore. In a response to Business Standard, Vimal Kejriwal, managing director and CEO for the company said, “We have been facing Issues and delayed disbursements primarily during the current financial year, earlier all the payments used to happen very promptly. Based on the discussions with various govt authorities, it seems that funding issues in JJM cropped up as last year was an election year for both central as well as some states probably due to budget mismatch/lower allocations etc.”

 

An executive from another company, executing some large water-related projects, noted that their receivables from one major state alone is in the range of Rs 200 crore, with no payments received from that state for more than two months.

 

Jalan noted, “The delay in payments is due to a mix of administrative delays at both the Centre and state levels, including the impact of the general and state elections. Additionally, there was pending clarity over the extension of the JJM scheme (which ended in March 2024), resulting in lower work allocation.”

 

Also reflective of the trend, is the spending on JJM, which has been only 1/3rd of the budgeted expenditure of Rs 70,000 crore for FY24-25, she added.

 

The scheme has now been extended until 2028, with a budgetary allocation of Rs 67,000 crore for FY25-26. With this budget allocation, executives at Kalpataru Projects International (KPIL) expect, “Cash to start improving”, they added that the company has realised Rs 340 crore from the water business from January onwards. It anticipates “collecting the remaining Rs 500-700 crore, which is already billed, in Q4FY25 or Q1 FY26,” in the earnings call.

 

Kejriwal from KEC also hopes with the enhanced and with payments starting in January, “will provide the required impetus.”

 

KPIL executives on the call said while they remain cautious in the short term on this water business, they are confident about the long-term growth prospects.

 

E P Sajit, Senior Vice President & Head – Water & Effluent Treatment Business, L&T Construction also noted, “The substantial budgetary allocation for the Jal Jeevan Mission in the upcoming financial year is a strong boost for the sector, complemented by the momentum of key programs. These initiatives are set to drive substantial investments across critical areas."

 

Jalan added, “CareEdge Ratings does not foresee any fundamental concerns regarding the projects. While this may result in accumulated debtors by the end of the year; traction in old receivables is also expected towards the end of FY25. This should ease the momentary working capital stress.”