Business Standard

Revenue growth of road EPCs to slow down to 5-7% by FY26: CRISIL Ratings

The operating profitability is supported by a 5 to 17 per cent decline in prices of key raw materials, steel and bitumen, from their peaks in FY22

road construction infra

Representative Picture

Prachi Pisal Mumbai

Listen to This Article

Revenue growth of road engineering, procurement, and construction (EPC) companies is expected to moderate to 5 to 7 per cent by FY26 amid lower national highway awarding, according to a study of 120 road EPC companies rated by CRISIL Ratings.

The reasons cited behind the slowdown include “procedural issues linked to the approval of cost estimates of projects and restrictions under the model code of conduct before elections to transition-linked issues as the government explores the build-operate-transfer (BOT) toll model for future projects in addition to its currently dominant modes of EPC and the hybrid annuity model (HAM)."

Manish Gupta, senior director, CRISIL Ratings, said, “The revenue growth will be impacted this fiscal and the next—after a compound annual growth rate (CAGR) of 13 per cent over the past five years. The Ministry of Road Transport and Highways (MoRTH) awarded an average of 12,500 km projects between FY22 and FY23, but the number dropped to 8,581 km last fiscal and is seen as modest at 8,000 km this fiscal.”
 

However, the credit profiles of these companies are expected to remain stable due to steady operating profitability and strong balance sheets. The operating profitability is supported by a 5 to 17 per cent decline in prices of key raw materials, steel and bitumen, from their peaks in FY22.

Anand Kulkarni, director, CRISIL Ratings, said, “The balance sheets of road EPC companies have strengthened over the past few fiscals because of healthy cash accrual and deleveraging through asset monetisation and equity raising.”

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 27 2024 | 9:28 PM IST

Explore News