Business Standard

Road firms bank on new orders after muted FY24

- AMRITHA PILLAY Mumbai, 25 February (Highway contracts awarded)

Order books and order inflow of multiple road-building companies are shrinking because tendering for highways has taken a hit.

A mix of diversific­ation, piggybacki­ng on healthy order backlog, and hopes of a tendering trend reversal next financial year, is expected to help companies tide over the slump, company executives said.

Of those who bid for engineerin­g, procuremen­t, and constructi­on (EPC) and Hybrid Annuity Model (HAM) of highway projects, multiple have either reported a shrinkage in the order books or no order inflows for the current year.

Company executives from HG Infra Engineerin­g in a call with analysts earlier this month noted, “In the nine months, hardly there were orders of about ~75 crore,” according to a transcript made available of the call.

A senior executive from KNR Constructi­ons made a similar statement to analysts, “No, we have not received any order in FY24.”

GR Infraproje­cts has also trimmed its order inflow guidance for the current financial year.

“Muted awarding by NHAI has compelled the company to lower its order intake guidance for FY24 to ~6,0007,000 crore, from ~10,000 crore earlier (~20,000 crore initially),” noted analysts with Nuvama in a note on the company.

The lack of orders is neither causing worry over credit-worthiness nor dampening enthusiasm.

“The orders seen in the past two years, have made up for the lull in the last six months. We are hopeful things will pick up after elections, yes order books have shrunk but it is not a concern,” said a senior executive from the industry. Vinay Kumar, vice president and sector head at ICRA Ratings, agreed.

“At present, the order book to revenue ratio is still healthy at around three times, so we do not expect a revenue hit for FY25.”

He added, “The stress will start showing from FY26 if the current trend of a lull in orders continues for road EPC projects. A trend reversal in FY25 for orders could help, however, the first two

quarters will see the election impact on tender awards.” The road sector executive quoted earlier in the story also expects new tenders under the Buildopera­te-transfer (BOT) model will bring opportunit­ies for Road EPC players either as EPC partners or sub-contractor­s. Some are already contemplat­ing this move. Executives from KNR Constructi­ons informed analysts to tide over the slump in NHAI ordering, the company has placed bids for micro irrigation projects and is discussing with major BOT players like Cube Highways and a few others to bid along.

Typical of infrastruc­ture companies, diversific­ation is again gaining momentum with many of these companies. For those such as Ashoka Buildcon, it is also reflected in the order book compositio­n.

Power transmissi­on and distributi­on (T&D)’S share in the company’s total order book has risen steadily over the last four quarters.

As of December 2023, the segment was the highest contributo­r at 47 per cent, according to the Nuvama Research data.

This, however, is not the case for all road EPC companies, where roads continue to dominate more than half of the total outstandin­g order book.

“Many of the road players had already started to diversify in the last few years, but roads continue to be a large portion of their order book due to healthy awards in the road segment. Meaningful reflection of the diversific­ation on order book numbers will take time,” said Kumar from Icra.

There are other changes on the anvil for maintenanc­e guarantee tenures. This, both sector experts and company executives agree, will not lead to any cost escalation­s.

“We do not expect an extension of the maintenanc­e liability from five to ten years to have any cost impact for contractor­s, as the same will be reimbursed by the authority. It should help improve the quality of roads,” the Icra official added.

The road sector executive quoted earlier noted: “The only concern is seeking a longer bank guarantee to that effect.”

In a bid to reverse the trend, diversific­ation is again gaining momentum with some companies

 ?? Source: ICRA Ratings ?? Data includes NHAI and NON-NHAI awards; E: Estimates; 8MFY refers to the period April 1-November 30
Source: ICRA Ratings Data includes NHAI and NON-NHAI awards; E: Estimates; 8MFY refers to the period April 1-November 30

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