Road Developers Revenue Growth to Slow to 5-7% in FY24: Crisil
By Rediff Money Desk, New Delhi Aug 27, 2024 18:07
Crisil forecasts a slower revenue growth of 5-7% for road EPC companies in FY24, citing lower highway awards. However, their credit profiles are expected to remain stable due to steady profitability and strong balance sheets.
![Road Developers Revenue Growth to Slow to 5-7% in FY24: Crisil](https://im.rediff.com/money/2021/jul/03road.jpg)
New Delhi, Aug 27 (PTI) Revenue growth of road engineering, procurement and construction (EPC) companies is expected to moderate to 5-7 per cent next fiscal, as lower national highway awarding weighs on their order books, rating agency Crisil said on Tuesday.
That said, the credit profiles of these companies will remain stable, supported by steady operating profitability and strong balance sheet, it added.
Crisil Ratings senior director Manish Gupta said the revenue growth will be impacted this fiscal and the next after a compound annual growth rate of 13 per cent over the past five years.
Ministry of Road Transport and Highways (MoRTH) awarded an average of 12,500 km projects between fiscals 2022 and 2023, but the number dropped to 8,581 km last fiscal and is seen modest at 8,000 km this fiscal.
This slowdown is attributed to procedural issues linked to the approval of cost estimates of projects and restrictions under model code of conduct before elections, transition-linked issues as the government explores build-operate-transfer (BOT) toll model for future projects in addition to its currently dominant modes of EPC and the hybrid annuity model (HAM), it said.
However, it said there would be some respite as prices of key raw materials steel and bitumen are down 5-17 per cent from their peaks in fiscal 2023.
"Since most projects are awarded on fixed-price basis, this will keep operating profitability steady at 13-14 per cent even after factoring in increased competitive intensity at the time of awarding of these projects," it said.
Consequently, Crisil Ratings said cash accrual is expected to be stable.
Going forward, while highway projects with a total length of 936 km were approved by the Cabinet Committee on Economic Affairs recently, timely approval of additional projects and their awarding will be essential for the sector, it said.
That said, the credit profiles of these companies will remain stable, supported by steady operating profitability and strong balance sheet, it added.
Crisil Ratings senior director Manish Gupta said the revenue growth will be impacted this fiscal and the next after a compound annual growth rate of 13 per cent over the past five years.
Ministry of Road Transport and Highways (MoRTH) awarded an average of 12,500 km projects between fiscals 2022 and 2023, but the number dropped to 8,581 km last fiscal and is seen modest at 8,000 km this fiscal.
This slowdown is attributed to procedural issues linked to the approval of cost estimates of projects and restrictions under model code of conduct before elections, transition-linked issues as the government explores build-operate-transfer (BOT) toll model for future projects in addition to its currently dominant modes of EPC and the hybrid annuity model (HAM), it said.
However, it said there would be some respite as prices of key raw materials steel and bitumen are down 5-17 per cent from their peaks in fiscal 2023.
"Since most projects are awarded on fixed-price basis, this will keep operating profitability steady at 13-14 per cent even after factoring in increased competitive intensity at the time of awarding of these projects," it said.
Consequently, Crisil Ratings said cash accrual is expected to be stable.
Going forward, while highway projects with a total length of 936 km were approved by the Cabinet Committee on Economic Affairs recently, timely approval of additional projects and their awarding will be essential for the sector, it said.
Source: PTI
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