Crisil SME Tracker: Rural road execution likely speed-breaker for SMEs

India’s roads sector is poised for moderate growth this fiscal, with a 6-8 per cent increase in capex, driven by the government’s focus on developing high-quality transportation infrastructure. 

 

Small and medium enterprises (SMEs) are expected to play a crucial role in this growth given they account for 50-55 per cent of the industry by revenue. 

 

The state and rural roads segments — constituting approximately 20 per cent of the road network and handling approximately 40 per cent of traffic by the facilitating movement of raw materials and products — offer SME players a substantial demand opportunity.   

 

The top 15 states, which account for nearly 85 per cent of total state spending, are each expected to boost their outlay 10-12 per cent on-year this fiscal, indicating expansion in state highways. SME players will likely play a crucial role in building these state and rural roads, where they can execute projects directly or act as sub-contractors for larger projects. 

 

That said, the declining pace of rural execution and drop in national highway awarding will keep the outlook for SMEs neutral in the sector despite increasing competition, government initiatives and steady demand. 

 

The pricing environment for the SMEs would be stable this fiscal, with operating margins rangebound at 10-11 per cent. Profitability will also be maintained, driven by steady demand and moderate revenue growth of 3-5 per cent.