Infrastructure Sector Poised for Margin Recovery by FY27

A report by Centrum suggests infrastructure companies might witness margin recovery starting the second quarter of FY27 as project execution improves and cost pressures diminish, despite current challenges. Although some firms experienced margin constraints, an overall strong order book is set to support multi-year revenue growth.

Infrastructure companies are projected to see a recovery in profit margins by the second quarter of fiscal year 2027 as project execution gains momentum and cost burdens diminish, according to a recent report by Centrum. Despite current pressures from high input costs affecting margins, firms remain committed to their FY27 outlook.

The report highlights that infrastructure companies, facing near-term cost-induced margin softness, have largely reaffirmed their FY27 guidance regarding revenue, margins, and order inflows. Management anticipates normalization of margins beginning in the second quarter of FY27.

In Q1FY27, the sector experienced a mixed performance with strong order accruals but continued profitability pressures. Revenue growth varied, with some companies managing double-digit improvement while others faced modest gains due to temporary challenges like site restrictions and labor shortages.

Profit margins felt the squeeze in the first quarter due to factors such as commodity price hikes, increased royalty fees, and elevated employee expenses, driven by preparations for forthcoming large-scale projects.

Not all companies felt the pinch, as some reported margin improvements thanks to operating leverage and foreign exchange gains. Despite some firms facing profitability pressures, the overall order backlog in the infrastructure sector is robust, buoyed by significant inflows and healthy tender pipelines.

This strong order book sets a positive tone for the sector, offering firms a multi-year revenue growth trajectory. Balance sheets also remain strong, with many companies maintaining low debt ratios, enhancing their capacity to bid for larger projects.

Despite the initial challenges in Q1, infrastructure companies continue to uphold their FY27 revenue and margin guidance. Management expects margins to improve as cost challenges recede and project execution steps up in subsequent quarters.