The Government has put infrastructure development at the top of its agenda in the current financial year. This was visible in the recently-announced Budget, where major focus was on outlay of highways and railways. In the Budget, the Centre has increased the allocation for highways by 28 per cent and has targeted award of 10,000 km of highways in FY17. It has laid out ambitious targets for spending on other infrastructure sectors and irrigation, drinking water supply, housing and power supply.
Because of this, order inflows in the construction sector are likely to grow, a report from India Ratings and Research (Ind-Ra) suggested. According to Ind-Ra report, [in the last financial year] construction companies have witnessed negative cash flows from operations; however this is likely to improve to near zero levels in the current financial year as more orders during the last two years are executed.
Vinay Betala, Associate Director with Ind-Ra, thinks that the competitive intensity for new orders had reduced over the last two years and hence, margins on such orders are expected to be higher.
Prudent accumulation of orders with a close correlation between the capacity to execute and order book size will be crucial to improvements in cash flows and credit metrics of individual companies. Therefore, Ind-Ra expects companies to focus on margins and funding while bidding for new projects and to limit their order books near current levels as a multiple of revenue, which will provide for a moderate growth in revenue along with improvement in cash flow margins.
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