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EPC road contractors face slower revenue growth: CRISIL SME Tracker

This is mainly due to lower investments in rural roads via the Pradhan Mantri Gram Sadak Yojana (PMGSY) and moderation in awarding by the National Highways Authority of India

CRISIL 

How 'national highway' status for roads is hurting govt's finances
National highway projects, at the other end, are usually executed by larger players, with a small proportion sub-contracted to SME EPC contractors.

CRISIL expects small and medium (SME) road contractors, which account for about half of the engineering, procurement and construction (EPC) roads industry, to see revenue growth moderate in the two years through fiscal year 2021.

At 10-11 per cent, the compound annual growth rate over these two years would be at least 200 basis points lower, compared with about 13 per cent in the three years through fiscal year 2019.

This is mainly due to lower investments in rural roads via the (PMGSY) and moderation in awarding by the National Highways Authority of India.

Rural road projects are typically awarded under the centrally-sponsored PMGSY or state schemes such as Mukhya Mantri Gram Sadak Yojana, and being smaller in size, are mostly executed directly by EPC contractors.

National highway projects, at the other end, are usually executed by larger players, with a small proportion sub-contracted to EPC contractors.

We estimate lower investments in the rural roads segments, as road physical construction targets are lower, compared with the last five years.

SME Tracker

Source: CRISIL Research

That said, investments in state roads — given lower road density in some states and higher state government budgetary allocations — are expected to help sustain growth. State road projects, which account for 65-70 per cent of SMEs’ market share, are expected to clock a higher growth of 11-12 per cent in the two years through fiscal year 2021, compared with 10 per cent in the previous three years.

First Published: Mon, January 06 2020. 23:03 IST
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