New Delhi: Road contractors are set for a 200 bps decline in margins, rating agency CRISIL said on Wednesday.
Credit profiles will remain stable, backed by strong awarding, and deleveraged balance sheets, it said.
Aggressive bidding and high raw material prices will drag down the operating profitability of road EPC (engineering, procurement, and construction) contractors by 200-250 basis points (bps) to a decadal low this fiscal.
The credit profiles of road EPC players, however, 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, the agency said.
A CRISIL analysis of 20 EPC players, which constitute 70 percent of the road sector revenue, indicated as much.
A CRISIL analysis of 20 EPC players, which constitute 70 percent of the road sector revenue, indicated as much.
Aniket Dani, Director, CRISIL Research, said, “Limited competition in HAM projects had supported healthy profit margins of road EPC players between fiscals 2018 and 2021. The changes in bid eligibility criteria and smaller package sizes have intensified competition, especially last fiscal. Average bid premiums nosedived to 4% the last fiscal from 16% earlier. Proposed changes in networth eligibility criteria and additional performance security for abnormally low bids may moderate the competitive intensity.”
