Covid-19 second wave may not impact overall construction activities: ICRA

Covid-19 second wave may not impact overall construction activities: ICRA

Investment Information and Credit Rating Agency (ICRA) has told the media that the ongoing second wave of Covid-19, which has adversely affected several industry sectors in the country, may not impact the performance of most mid and large-sized construction companies.

According to ICRA's assessment, most of these companies are focused on non-urban infrastructure projects—roads, railways, irrigation, among others, which are primarily located in remote areas or at a distance from the metros. Unlike the first Covid-19 wave, there is no nationwide lockdown and only localised lockdown restrictions with exemptions for construction activities.

Projects located within urban areas, such as metro rail projects, building construction, among others, are likely to feel a greater impact due to localised restrictions and reverse migration of labour, ICRA said.

Before the second covid wave, the construction sector had started witnessing a recovery, and the pace of execution had crossed the pre-pandemic levels. The construction gross value added (GVA) growth of 6.2% in Q3 2020-21 and estimated growth of 8.4% in the March quarter reflect this.

Due to this recovery, the construction GVA for 2020-21 is expected to contract by only 10.3%, despite a sharp 29.1% contraction in H1-FY2021, the agency said. The recovery was driven by a healthy pace of execution, supported by favourable policies from the government in terms of lowering the bank guarantee requirement, faster clearance of bills, and speedier clearances.

The recent spike in Covid-19 cases increases the risk of restrictions on construction activities at the localised level and curtails labour availability at project sites, which could cause short-term disruptions in construction activities. Maharashtra and Delhi both announced lockdowns, while many other states have announced weekend lockdowns that would impact the movement of labour and raw material.

ICRA expects such a disruption to be limited and short-tenured and hence has not revised its revenue growth estimates of 15-20% for 2021-21.

Given that the sector had faced a more intense effect during the first wave, most companies have improved their preparedness in terms of labour and raw material availability. Companies that are focused on the construction of real estate projects would witness a higher impact, given that most of these projects will be in metro or large cities where the risk of labour migration and localised lockdown could hinder their execution.

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