Reports reveal that the order book for 66 construction companies is three times their current revenue. Is there an ideal ratio to be followed?
According to Vijay Agrawal, Executive Director, Equirus Capital, “Generally, the ideal order book to execution ratio should be between three to four times of revenue. A good visibility of the next three-year order book gives comfort to investors.” Rajeshwar Burla, Assistant Vice-President & Associate Head - Corporate Ratings, ICRA, says, “The thumb rule is that the ratio should be close to the average execution period of the segment the contractor is operating in.”
Now, time for a reality check!
KNR’s existing EPC road projects amount to Rs 12.104 billion and HAM projects in the EPC mode to Rs 39.75 billion, taking the company’s total road EPC order book to Rs 51.854 billion. The company’s current order book to execution ratio is 2.5:1.
“At Dilip Buildcon, our order book to execution ratio is 2 to 2.5 times the current revenue,” says Devendra Jain, CEO & Executive Director, Dilip Buildcon. The company’s total order book is Rs 230 billion. This includes Rs 130 billion worth of HAM projects and Rs 100 billion of EPC works. EPC works include roads as well as urban development, rails and metro, and mining.
The EPC order book of PNC Infratech as on December 31, 2018, was around Rs 80 billion. The company has seven highway projects on HAM with an aggregate bid project cost of over Rs 95 billion. “Four are already in the construction phase; for three projects, we have achieved financial closure and appointed dates for the same are awaited from NHAI,” says Yogesh Kumar Jain, Managing Director, PNC Infratech. The company has seven BOT toll and BOT annuity projects, which are already operational.
As on 31 December, 2018, out of the total Balance Order Book of 95 Billion, Ashoka Buildcon the order book in the road sector for own BOT projects is of Rs 48.93 billion. This primarily constitutes HAM projects worth Rs 47.75 billion, with the balance Rs 1.18 billion consisting of orders of certain annuity projects (not HAM). “These include seven HAM projects,” says Paresh Mehta, CFO, Ashoka Buildcon. “While two have been under execution for more than one-and-a-half years, five are recent additions.”