Transport & building segments hold 62% of India's construction market: ICRA
ECONOMY & POLICY

Transport & building segments hold 62% of India's construction market: ICRA

The Indian construction sector is poised for robust growth, with transportation and building segments continuing to be the primary drivers of the industry. While the transportation sector, encompassing roads, metro, airports, bridges, and flyovers, remains a cornerstone of the construction industry, the building segment, comprising residential, commercial, mixed-use, and industrial projects, continues to be a significant contributor to the overall growth. However, their combined share has declined to 62% in FY2024 from 77% in FY2020. The proportion of orders in mining, water, and energy has increased over the same period. The construction industry is also witnessing a gradual diversification, sectors like mining, water, and energy are gaining traction, contributing to a more balanced order book. ICRA maintains a Stable outlook for the sector with steady growth in operating income, moderate leverage, and comfortable coverage metrics.

ICRA?s analysis reveals that the aggregate order book-to-sales ratio of its sample set of companies remained stable at 3.3x as of March 2024, indicating healthy revenue growth prospects. According to ICRA, the sector is projected to achieve a double-digit growth rate of 12-15% in FY2025. This stability is attributed to the consistent government spending on infrastructure, which has supported order books between 3.3x and 4.0x of operating income over the past five years.

"The aggregate order book-to-sales ratio of ICRA's sample set of companies remained stable at 3.3x as of March 2024 (3.4 times during March-2023), thereby indicating healthy revenue growth prospects over the medium term," said Chintan Lakhani, Vice President and Sector Head - Corporate Ratings, ICRA, "Certain construction entities have witnessed pressure on road sector related order inflows in FY2024, in the backdrop of muted order awarding from the Ministry of Road Transport and Highways. However, diversification into other segments like drinking water, metro segment, or railway station development has helped them sustain their order book. ICRA expects the revenue growth to remain healthy at 12-15% in FY2025".

While the outlook for the construction sector is positive, challenges such as intense competition, rising steel prices, and the elongation of the cash conversion cycle need to be monitored. The steel prices have started itching upwards and could be a spoilsport in the current fiscal. The intense competition in engineering, procurement & construction, and hybrid annuity model projects awarded by the NHAI / the Ministry of Road Transport and Railways continues to remain high; however, it is relatively moderate in segments like sewage and drinking water. Notwithstanding the heightened competition, the operating margins, supported by operating leverage benefits, are expected to largely remain stable at around 11% - 25bps in FY2025 end.

?ICRA expects the cash conversion cycle to elongate, with no further extensions in Atma Nirbhar Bharat scheme-related relaxations beyond Mar-2024. Consequently, the debt levels are expected to increase to support the enhanced working capital requirements. However, the corresponding operational leverage benefits are anticipated to keep the interest cover at ~4.0 times in FY2025e,? Lakhani added.

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody's Investors Service is ICRA's largest shareholder.

Your next big infra connection is waiting at RAHSTA 2025 – Asia’s Biggest Roads & Highways Expo, Jio World Convention Centre, Mumbai. Don’t miss out!

The Indian construction sector is poised for robust growth, with transportation and building segments continuing to be the primary drivers of the industry. While the transportation sector, encompassing roads, metro, airports, bridges, and flyovers, remains a cornerstone of the construction industry, the building segment, comprising residential, commercial, mixed-use, and industrial projects, continues to be a significant contributor to the overall growth. However, their combined share has declined to 62% in FY2024 from 77% in FY2020. The proportion of orders in mining, water, and energy has increased over the same period. The construction industry is also witnessing a gradual diversification, sectors like mining, water, and energy are gaining traction, contributing to a more balanced order book. ICRA maintains a Stable outlook for the sector with steady growth in operating income, moderate leverage, and comfortable coverage metrics. ICRA?s analysis reveals that the aggregate order book-to-sales ratio of its sample set of companies remained stable at 3.3x as of March 2024, indicating healthy revenue growth prospects. According to ICRA, the sector is projected to achieve a double-digit growth rate of 12-15% in FY2025. This stability is attributed to the consistent government spending on infrastructure, which has supported order books between 3.3x and 4.0x of operating income over the past five years. The aggregate order book-to-sales ratio of ICRA's sample set of companies remained stable at 3.3x as of March 2024 (3.4 times during March-2023), thereby indicating healthy revenue growth prospects over the medium term, said Chintan Lakhani, Vice President and Sector Head - Corporate Ratings, ICRA, Certain construction entities have witnessed pressure on road sector related order inflows in FY2024, in the backdrop of muted order awarding from the Ministry of Road Transport and Highways. However, diversification into other segments like drinking water, metro segment, or railway station development has helped them sustain their order book. ICRA expects the revenue growth to remain healthy at 12-15% in FY2025. While the outlook for the construction sector is positive, challenges such as intense competition, rising steel prices, and the elongation of the cash conversion cycle need to be monitored. The steel prices have started itching upwards and could be a spoilsport in the current fiscal. The intense competition in engineering, procurement & construction, and hybrid annuity model projects awarded by the NHAI / the Ministry of Road Transport and Railways continues to remain high; however, it is relatively moderate in segments like sewage and drinking water. Notwithstanding the heightened competition, the operating margins, supported by operating leverage benefits, are expected to largely remain stable at around 11% - 25bps in FY2025 end. ?ICRA expects the cash conversion cycle to elongate, with no further extensions in Atma Nirbhar Bharat scheme-related relaxations beyond Mar-2024. Consequently, the debt levels are expected to increase to support the enhanced working capital requirements. However, the corresponding operational leverage benefits are anticipated to keep the interest cover at ~4.0 times in FY2025e,? Lakhani added. About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody's Investors Service is ICRA's largest shareholder.

Next Story
Infrastructure Transport

Indian Railways Marks New Milestone with 4.5 km Long ‘Rudrastra’ Trial

Indian Railways has successfully conducted the trial run of Asia’s longest freight train, named ‘Rudrastra’, achieving a new milestone in cargo transportation, as per news reports. The 4.5 km-long train began its trial from Ganjkhwaja railway station in Chandauli, Uttar Pradesh, and travelled to Garhwa in Jharkhand. Covering a distance of 209 km in 5 hours and 10 minutes, it maintained an average speed of 40.5 km per hour. The train was formed by combining three long-haul racks, with ..

Next Story
Infrastructure Energy

UltraTech Launches India’s First On-Site Hybrid RTC Renewable Energy Project

UltraTech Cement has operationalised a 7.5 MW round-the-clock (RTC) hybrid renewable energy project at its Sewagram Cement Works in Gujarat. The first-of-its-kind solution combines bifacial solar modules with trackers, wind energy and battery storage, co-located on-site, to ensure uninterrupted power for cement manufacturing without grid reliance. The project was executed in collaboration with clean energy solutions provider Gentari. Installed as a behind-the-meter system, it is the country..

Next Story
Infrastructure Transport

Patna Metro Trials Successful, Red Line Priority Corridor to Launch This Month

Patna is set to roll out its first metro rail service later this month, with successful trial runs conducted on the Red Line priority corridor, the Patna Metro Rail Corporation announced.On 7 September, a metro train completed a test run between the Patna depot and Bhootnath station. Officials said the trials involved rigorous checks of rolling stock fitness, overhead electrification (OHE), and track alignment and stability to ensure operational safety and performance.The corridor from the New Pataliputra Bus Terminal to Bhoothnath has been designated as the priority stretch and will be the fi..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Talk to us?