Slow order awards, execution key concerns for infrastructure sector

Slow road awards and execution delays weigh on infra firms in Q3FY26, though FY27 Budget capex push and toll growth offer medium-term support

Activity across infrastructure sectors in the third quarter of 2025-26 (Q3FY26) was slow due to underperformance in roads. Slow road awards have led to most engineering, procurement, and construction (EPC) companies lowering revenue and margin guidance for FY26. But activity is expected to pick up in Q4FY26. The Budget FY27 indicates that the Centre will continue to support infrastructure buildout.

 

In Q3FY26, road companies reported aggregated operating profit margin of 11.5 per cent, lower than consensus, due to higher costs and slow execution. Competitive intensity in road EPC has also increased, resulting in margin compression.

 

The National Highways Authority of India (NHAI) may miss its FY26 award targets. As of mid-January 2026, 1,135 km has been awarded by NHAI against the FY26 target of 6,376 km. NHAI has built 3,551 km of national highways from April 2025 to mid-January 2026, against a target of 6,000 km. NHAI exceeded its target of 5,150 km in FY25, building 5,614 km.

 

The revenues of top construction companies decreased year-on-year (Y-o-Y) in Q3FY26 due to lower order books, payment issues, extended monsoons, and NCR (National Capital Region) construction bans. Road revenues for EPC companies were down 7 per cent Y-o-Y, but better activity in non-road construction offset this to an extent.

 

Among primary road players, GR Infraprojects reported Y-o-Y revenue growth, mainly driven by contributions from oil & gas, and power. But J Kumar Infraprojects, KNR Construction, HG Infra Engineering, and PNC Infratech posted Y-o-Y revenue declines.

 

In the non-road sector, Kalpataru Projects International and KEC International delivered revenue growth, driven by power (transmission and distribution, or T&D segment). But margins were under pressure due to higher costs and delays in receiving water payments. Ahluwalia Contracts registered Y-o-Y revenue gain but suffered from adverse actions from the National Green Tribunal (NGT). RITES reported revenue growth, supported by broad-based performance. PSP Projects also posted revenue growth.

 

Road execution in FY26 is expected at 9,000-9,500 km, the slowest since Covid. Issues included extended monsoon, regulatory delays, and slower conversion of awards into execution. Any medium-term rebound in the sector must start with faster awards.

 

There’s positive news on toll collections, indicating good traffic trends. Estimates indicate FY26 toll collections of ₹75,000 crore versus ₹61,408 crore in FY25. This could have positive knock-on effects for road monetisation. For FY26, NHAI has an asset monetisation target of ₹30,000 crore (vs ₹28,700 crore done in FY25). The Authority has identified 24 assets spanning 1,472 km.

 

In an attempt to generate alternative revenues, road infra companies are diversifying into railways, Metros, solar, power transmission, water, and tunnelling, among others. Management commentary indicates that these verticals may contribute 25-30 per cent of revenue over the medium term.

 

In T&D and civil works, KEC International and Kalpataru Projects expect strong pipelines. KEC claims a tender pipeline exceeding ₹1.8 trillion, with an order book of over ₹23,504 crore in T&D and ₹10,000 crore in civil. KPIL holds an order book of ₹25,948 crore in T&D and ₹18,596 crore in civil, providing clear revenue visibility. T&D growth will be supported by opportunities across India, Abu Dhabi, and Saudi Arabia. The national power transmission plan indicates ₹9 trillion investment opportunity through 2032.

 

In railways, wheelset unavailability led to slower revenues for three listed wagon players, whose revenues decreased 16 per cent Y-o-Y. Total wagons dispatched by the three players contracted 23 per cent Y-o-Y in Q3FY26. In the first nine months of 2025-26 (M9FY26), wagon dispatch fell 26 per cent Y-o-Y to 14,682 wagons, operating profit margins for wagon players dipped 60 bps Y-o-Y to 11 per cent, and net profit margins fell 130 bps Y-o-Y to 6.2 per cent. New wagon tenders will be a positive, given a falling wagon order book.

 

The working capital cycle deteriorated to 195 days in Q3FY26 from 147 days at end-Q3FY25 for the top-eight companies. Building construction has been relatively strong and overall order inflow for the top-13 listed infra companies (excluding NBCC) in Q3FY26 rose 4 per cent Y-o-Y.

 

Budgeted capex for FY27 is ₹12.2 trillion, up 11 per cent Y-o-Y. Roads & bridges gets 9 per cent more and the railways gets 10 per cent more Y-o-Y. To impart lender confidence, the government has proposed to Infrastructure Risk Guarantee Fund to extend calibrated credit guarantees.

 

The NHAI has a pipeline of over 120 projects across EPC, hybrid annuity model, and design build finance operate and transfer (DBFOT), with estimated capital costs of ₹3 trillion. The outlook hinges on the speed of conversion into actual awards. Obviously, the slowdown has led to an erosion of confidence, which needs to be regained.