Diversified infra players better bet amid weak road order inflows

Engineering and construction (E&C) order inflows remain subdued in Q3FY26 amid delayed approvals, funding constraints, and a high base

Activity in the roads sector has been slow and road awards were subdued due to the policy decision to halt awards under the Bharatmala programme. No increase in road capex in the Budget for 2025-26 meant little pickup.

 

Engineering & construction (E&C) order inflows remain subdued in the third quarter of FY26 amid delayed approvals, funding constraints, and high base. 

Execution is likely to improve sequentially on seasonality and healthy order books but payment delays and operational bottlenecks are visible. The margin outlook is stable on favourable input cost, and improved bank credit with easier interest rates. Road asset monetisation has improved.

 

Order inflows in the E&C sector remain weak in Q3FY26, down 23 per cent on year, dragged by high base, approval delays, land acquisition constraints, and tight state funding.

 

Larsen & Toubro (L&T) saw modest inflows from domestic infrastructure projects, while there were project wins at KNR Constructions, HG Infra Engineering and HCC.

 

But Ashoka Buildcon, PNC Infratech, PSP Projects, and Afcons Infrastructure reported muted inflows while NBCC India saw good momentum and a pickup in real estate sales. The order book in Q3FY26E will be up 21 per cent on year, with a book-to-bill visibility of 3.5 times ensuring visibility of revenues. 

 

Execution may pick up in Q3FY26, up 15 per cent quarter-on-quarter (Q-o-Q) and 13 per cent Y-o-Y, led by seasonality and a healthy order book, although delayed approvals, and NCR construction ban remain concerns. Operating profit margin may remain stable, with lower steel costs offset by a small rise in cement prices.

 

Assuming Central budget allocations maintain the same quantum in FY27 (adjusted for inflation), diversified E&C is more attractive than single sector plays. There is a trend towards diversifying with corporates seeking new revenue streams. Companies with a strong balance sheet, diversified order book, and execution visibility will be gainers.

 

As of Q3FY26, project awarding by NHAI was subdued at 711 kilometres (km), while construction stood at 2,865km (project awarding by NHAI totalled 4,080km, and construction reached 5,600km in FY25).

 

In line with the Budget 2025-26, Ministry of Road Transport and Highways of India (MoRTH) has identified a PPP project pipeline of 13,400km with a cost of ₹8.3 trillion to be developed over the next three years.

 

NHAI has set a target of 6,376km to be awarded in FY26. Awarding is expected to improve in Q4FY26. The pipeline mostly comprises hybrid asset model or HAM projects followed by built operate transfer or BOT and engineering procurement and construction or EPC.

 

Execution will be slow until awarding by MoRTH and National Highways Authority of India (NHAI) picks up.

 

Roads have seen competition from small players, which has compressed margins and also reduced the quality of execution.

 

NHAI has tightened request for proposal (RFP) provisions to ensure projects are awarded to contractors with proven competence which may help big players.

 

Project awarding remained muted but there is a robust pipeline of tenders in place. Entities with substantial order backlogs, strong financials, and exposure across various sectors are well positioned to capitalise on NHAI’s approach to project allocation.

 

FASTag toll collections (in volume terms) improved 17 per cent on year during Oct-Nov’25, while collections in value terms increased 12.7 per cent on year. Higher toll collections aid in asset monetisation.

 

The pace of new project awards remains a key monitorable. Road execution across MoRTH has seen a 12 per cent on year drop in FY26. In Q3FY26, road construction companies are expected to report a decline of 5 per cent on year due to delayed project execution.

 

The operating profit is likely to reduce by 16 per cent on year, and net profit is projected to decline by 30 per cent on year for the roads sector.

 

The operating profit margins are estimated at 13 per cent, down by around 200 basis points on year. In aggregate, revenue may be flat on year (up 24 per cent Q-o-Q due to seasonal factors) and operating profit could decrease by a small amount on year.

 

Companies like GR Infraprojects, KNR Constructions, and PNC Infratech are trying to win orders outside the road segment with a focus on water supply, solar, battery energy storage services, transmission, and mining. KEC International (KEC) and Kalpataru Projects International (KPIL) saw order inflows of ₹6,544 crore and ₹4,335 crore, respectively, in Q3FY26 in T&D. Diversified EPC firms, such as Afcons Infrastructure, Larsen & Toubro with diversified exposure and superior execution capabilities could be major beneficiaries.