Indian Construction Sector Likely To Grow 8.5-9%

Amid the upcoming general elections, the rating agency Icra in a report has projected the Indian construction industry to grow at 8.5 to 9 per cent in FY2024, driven by the government's robust infrastructure agenda.

Notably, Q2 FY2024 witnessed a 13.3 per cent year-on-year (YoY) surge, attributed to efficient execution and a dip in raw material prices compared to 7.9 per cent in Q1 FY2024. While this marks a slight moderation from FY2023's over ten per cent growth, it notably surpasses the long-term average of 5.3 per cent from FY12 to FY23.

Further, the report highlighted the industry's gravity, citing strong order book inflows and a 3.2 order book-to-billing ratio in H1 FY2024.Projections suggest a potential 50-100bps improvement in construction sector margins for FY2024, driven by an expected 18 to 20 per cent revenue surge and subsequent operating leverage benefits coupled with moderated commodity prices. 

Meanwhile, the report stated that the Mumbai-Ahmedabad high-speed rail corridor, a pivotal project in India's infrastructure narrative, faced initial delays but is making significant strides. With 99.9% right-of-way availability, 100 per cent allocation of civil contracts and 69 per cent of track-related contracts awarded, the project progresses. 

However, Icra forecasts a substantial 75 per cent cost escalation to Rs 1.9 lakh crore, pushing the operational readiness to CY2029.

The report also mentioned that stable raw material prices, anticipated operating leverage gains, and strong execution momentum are all anticipated to increase overall profitability. This optimistic outlook is supported by healthy coverage metrics, such as an interest cover that is predicted to stay above 4.0 times in FY2024 and FY2025.