Higher budgetary allocations to accelerate recovery in construction sector: Ind-Ra

India Ratings and Research (Ind-Ra) on Tuesday revised its outlook for the construction sector outlook to improving in the next financial year (FY2021-22) from negative in FY21.

India Ratings and Research (Ind-Ra) on Tuesday revised its outlook for the construction sector outlook to improving in the next financial year (FY2021-22) from negative in FY21. Increased focus on infrastructure spending in the recently announced Budget for FY22 where healthcare, water (including irrigation), roads and railways have seen strong allocations will result in higher order inflows to the sector.

Ind-Ra thus said that sector revenue will grow by 15 to 20 percent year-on-year in FY22. The agency also revised the rating outlook on its rated construction companies to stable from negative on account of likely recovery trajectory of engineering, procurement and construction (EPC) players after registering two consecutive years of revenue decline.

Ind-Ra considered its rated peers excluding Larsen & Toubro Ltd due to its large scale which would otherwise have skewed the report analysis. It expects the revenue to decline by 4 percent in FY21 due to the impact of pandemic. The agency in its FY21 mid-year outlook had estimated a 15 percent decline in the sector scale of operations on account of lockdowns and weak performance in 1H FY21.

However, EPC companies have been able to address supply-side issues like manpower mobilization and logistics for raw material procurement at a quicker pace than anticipated, resulting in a faster-than-expected recovery in the order book execution. Ind-Ra said this will continue in FY22 based on the Union Budget's proposal of higher allocations for infrastructure than in the past few years.

New projects have been included to the National Infrastructure Pipeline (NIP) where most of the project execution (around Rs 1.1 lakh crore out of Rs102 lakh crore is executed till January 2021) is pending. "To complete the NIP in stipulated timeframe by FY25, the government has to increase the pace of tender announcements which will result in increased order inflows across the segments of NIP," said Ind-Ra.

"The government's focus on increasing construction pace in road projects, electrification of railway lines and commencement of dedicated freight corridor projects in FY22 will result in strong order inflows in these segments." 

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