High raw material prices to hit operating profitability of road EPC contractors: Crisil
Aggressive bidding and high raw material prices will hit drag down the operating profitability of road EPC contractors by 200-250 basis points to a decadal low this fiscal, rating agency Crisil said on Thursday.
However, the report said the credit profiles of road EPC (Engineering, Procurement, and Construction) players will remain stable, supported by deleveraged balance sheets, prudent working capital management, and steady cash accrual, with strong awarding in the past two fiscals supporting revenue growth.
According to the rating agency, the National Highways Authority of India (NHAI) awarded 6,300 kilometers of road projects last fiscal, up 30 percent on the year, of which 55 percent was under the Hybrid Annuity Model (HAM).
Relaxation in bidder financial and technical capacity criteria led to peak HAM awarding of 3,500 km of road projects in fiscal 2022, up from 2,600 km in the previous fiscal, Crisil said.
To fast-track construction by awarding to a larger pool of players, Crisil said package sizes were pruned 30 percent in the past two financial years compared with order sizes during fiscals 2016-20.
As a result, mid-sized regional players won 40 percent of HAM awards in fiscals 2021 and 2022, vis-à-vis 25 percent during fiscals 2016-20, it said. PTI BKS RAM
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