Construction industry margins to stay between 10.25-10.75% in FY26: Icra

Operating margins in the construction industry are expected to remain steady at 10.25-10.75% in FY26, down from 13-14% in FY21, with revenue growth revised down to 6-8%

Amid intense competition in the sector, operating margins of construction industry players are estimated to remain steady at 10.25-10.75 per cent in FY26, down from 10.6 per cent in FY25, according to Icra. This marks a sharp decline from the margins in FY21, which stood at 13-14 per cent.

 

The ratings firm has also revised its revenue growth estimate for the industry in FY26 to 6-8 per cent, down from the earlier guidance of 8-10 per cent, due to continued headwinds in road-awarding activity as well as a slowdown in the execution of Jal-Jeevan mission-related projects.

 

However, an expected ramp-up in other segments, especially urban infrastructure and irrigation, may result in relatively better performance for the industry in FY26, compared to flat growth during FY25.

 

Further, the aggregate order book/operating income for Icra’s sample set of entities is expected to be 3.5x as of March 31, 2026, providing adequate revenue visibility for industry participants. The aggregate order book/OI was 3.4x as of March 31, 2025.

 

Icra’s sample set features 19 companies with a combined turnover of almost Rs 1.3 trillion in FY25.

 

Order inflows in FY25 registered a year-on-year (YoY) decline of 19 per cent, primarily impacted by the general elections during H1 FY25. 

 

Suprio Banerjee, vice president and co-group head, corporate ratings at Icra, said, “Contractors, largely focused on the road segment, are likely to underperform compared to broader trends, owing to the slowdown in order-awarding activity from the MoRTH/NHAI. Several mid-sized road construction entities have an order book/revenue ratio of less than 2.0 times, indicating imminent stress on their revenue prospects in FY26, far below the industry average of around 3.5 times."

 

However, players focused on segments like urban infrastructure or the energy sector are expected to sustain double-digit revenue growth in FY26.

 

The majority of road projects under the MoRTH/NHAI were awarded at a sizeable discount compared to the authority’s base price, indicating heightened competition. The competition in other sectors, such as metro, water supply, and sanitation, has also intensified, with new entrants trying to diversify their order books, Icra noted.

 

The operating margins of players are expected to remain under check due to aggressive competition, although stable commodity prices and operating leverage benefits should provide some support to profitability.

 

“While debt levels are likely to increase to support higher working capital requirements, the corresponding operational leverage benefits are projected to keep the interest cover adequate at 3.5-3.8 times in FY26. Given the moderate leverage and satisfactory debt coverage metrics, Icra maintains a stable outlook on the construction sector,” Banerjee added.

 

Construction activities — particularly road projects — have been notably affected due to lower fresh order inflows following the enforcement of the model code of conduct in Q1 FY25, coupled with execution-related challenges due to an extended monsoon season and a transition to milestone-based billing.