Highway sector at crossroads as low central awards boost state role: Ind-Ra

India Ratings and Research (Ind-Ra) on Monday said India's highway sector is facing challenges, with muted central road award activity for the past two years, leading to increased competition and persistent project execution issues.

The rating agency further said that although state awards have come to the rescue, the sector is likely to witness subdued revenue and margins.

"The muted central award activity has altered the sector's dynamics, pushing states into the driver's seat. While this shift ensures continuity, it also introduces complexities around execution and financing," said Krishan Binani, Director, Corporate Ratings, Ind-Ra.

Moreover, Ind-Ra said the sector is likely to witness a higher number of build-operate-transfer (BOT) projects at both the centre and state levels, necessitating increased private capital.

Ind-Ra said it projects modest year-on-year revenue growth of 6 per cent to 8 per cent for the overall engineering, procurement and construction (EPC) sector in FY26, largely due to flat-to-negative growth in the highways sector, following a significant revenue decline in FY25.

It said margins are expected to bottom out in FY26, after decreasing about 500bp over FY21-FY26.

However, working capital cycles may begin to rise as the project mix shifts towards more state awards, the rating agency said.