Increased fresh order inflows key to the growth of construction companies

The first quarter of the financial year 2026 (Q1FY26) saw rise in tenders and orders year-on-year (Y-o-Y) on the low base of election-hit Q1FY25. Tendering grew by 6.4 times Y-o-Y to ₹1.26 trillion in May-25 (up 4 per cent M-o-M) led by hospitals, water & sewerage and power distribution.

 

However, this was lower than the FY25 monthly average of ₹1.32 trillion.

 

In key segments such as highways (₹32,500 crore, up 10.6 times Y-o-Y), buildings (₹19,800 crore, up 6.9 times Y-o-Y), railways (₹16,800 crore, up 2.5 times Y-o-Y), improvement was marked but order awards which grew by 2.1 times Y-o-Y to ₹51,100 crore (up 16 per cent M-o-M) in May-25, were still well below the FY25 monthly average of ₹1.05 trillion (FY24 average was ₹73,500 crore).

 

Some of the key award recipients in May included DR Agrawal Infracon (₹4,100 crore), Larsen&Toubro (₹ 3,800 crore), NCC (₹2,500 crore) among others.

 

Order-wins had also improved in Q4FY25 with order inflow up 105 per cent Y-o-Y for the 14 largest listed infra contractors. As a result, book-to-bill improved to 3 times at end-FY25 from 2.2 times at end-FY24. NBCC, NCC and Afcons were among major gainers.

 

Net debt moderated overall but working capital stresses were visible across the sector.

 

Execution was soft in Q4FY25 with low execution and payment issues leading to 4 per cent Y-o-Y contraction in aggregate Q4FY25 revenues for large listed infra companies. The average operating profit margin fell 80 basis points Y-o-Y and 30 basis points Q-o-Q to 10.3 per cent.

 

Road awards remained muted for a second financial year in a row. There has been no increase in budgeted outlay for roads and railways in the FY26 budget. Road engineering procurement and construction or EPC companies saw aggregated topline down by over 10 per cent Y-o-Y, but there was better performance by urban infra players. 

 

Highways bid pipeline moderated to ₹69,100 crore in June-25 from ₹80,200 crore in May-25. Industry players hope awarding will pick up going forward.

 

Higher distributions from investment trust or InvIT to GR Infra led to overall net profit margins improving to 6 per cent (up 30 basis points Y-o-Y and up 30 basis points Q-o-Q) for 14 largest listed companies. Excluding GR Infra, net profit margin for the sector decreased slightly during Q4FY25. 

 

Average return on equity or RoE fell to 14.4 per cent in FY25 (16.2 per cent in FY24) and return on capital employed or RoCE too decreased to 19.9 per cent in FY25 from 21.4 per cent (FY24).

 

Diversified players such as Kalpataru Projects International or KPIL, KEC International or KEC and L&T delivered growth but highway companies like KNR Constructions, PNC Infra and Ashoka Buildcon saw revenue contraction due to lower executable order backlogs.

 

In Q4FY25, KPIL (revenue growth of 21 per cent Y-o-Y), KEC (12 per cent revenue growth) and L&T (revenue growth of 11 per cent) saw satisfactory revenue growth.

 

The largest player, L&T saw consolidated order inflows up by 24 per cent Y-o-Y to ₹89,600 crore and adjusted net profit grew by 17 per cent Y-o-Y in Q4FY25. The order backlog grew by 22 per cent Y-o-Y to ₹5.79 trillion (3.1 times trailing twelve month revenues). Consolidated revenue grew by 11 per cent Y-o-Y to ₹74,400 crore and operating profit grew 13 per cent Y-o-Y to ₹8,200 crore and adjusted net profit grew 17 per cent Y-o-Y to ₹ 5,000 crore.

 

But highway developers missed FY25 their guidances.

 

Operating profit margins improved for diversified companies while dropping for highway players. Orders remain reasonable across the sector with book-to-bill ratios between 2 .5 times to 4 times the trailing 12-months (TTM) revenue. Asset monetisation plans may release growth capital for highway players.