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Diversified Construction Companies Stable Outlook

Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA maintains a Stable outlook on the construction sector.

BY Realty+
Published - Saturday, 19 Apr, 2025
Diversified Construction Companies Stable Outlook

ICRA projects that the construction industry's operating margins to remain range-bound at 10.5-11.0% in FY2025 and FY2026, supported by relatively stable input prices and benefits from operational leverage.

The contractors, focused largely on the road segment, are likely to under-perform compared to broader trends owing to slowdown in order-awarding activity from the MoRTH/NHAI. Several mid-sized road construction entities have order book/revenue of less than 2.0 times, indicating imminent stress on their revenue prospects in FY2026.

Diversified players, especially those focusing on urban infrastructure, renewable and water-related projects are anticipated to perform relatively better in the current fiscal." 

The cash conversion cycle is expected to sustain at the current levels, given that the expiry of the Atmanirbhar Bharat relief measures have already elongated the working capital cycle for players in FY2025.

While debt levels are likely to increase to support the higher working capital requirements, the corresponding operational leverage benefits are projected to keep the interest cover adequate at 3.6-3.9 times in FY2026e. he margin outlook remains bifurcated by segment, with road-focused contractors facing greater pressure compared to diversified players in urban infrastructure, renewables and water projects.

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