Construction industry to see healthy medium-term revenue growth, says CIFAR

“Order intake in the road, railway and drinking water sectors should be healthy, supported by the increase in government allocations”

“Order intake in the road, railway and drinking water sectors should be healthy, supported by the increase in government allocations”

India’s construction industry is expected to experience healthy revenue growth over the medium term, ICRA said in a report. He said construction Gross Value Added (GVA) is expected to grow by 9-11% in FY 2023, due to the government’s focus on infrastructure development, strong backlog and a low base effect.

“The total backlog-to-sales ratio for the CIFAR sample of 12 entities is approximately 3.2 times, indicating a strong outlook for revenue growth over the medium term,” the report said. rating agency.

While roads and buildings continue to represent the bulk of the backlog, metropolitan/urban infrastructure, water and sewerage have seen significant backlog expansion in recent years.

But the sharp increase in raw material prices, as well as increased competition, will have a negative impact on the industry’s profitability, with an expected decline in operating profitability of 100 to 200 basis points in the current financial year. course, he said.

Abhishek Gupta, Sector Head and Assistant Vice President, Corporate Ratings, ICRA , said, “Over the past five years, the order backlog of construction companies in the sample has grown at a CAGR of 12% remaining between 3x and 4x billings, supported by an increase in capital expenditure towards the infrastructure sector by the central and state governments. ”

“Growth has been much higher for some medium-sized entities, which have increased significantly over this period as relaxations of tender criteria during Covid have increased their ability to place orders. Some large companies were also able to expand their order book at a healthy pace during this period,” he said.

Supported by a strong backlog, ICRA expects industry revenue to grow 12-14% in fiscal 2023e. Going forward, order intake in the road, railway and drinking water sectors is expected to be healthy, supported by increased government allocations,” he added.