Strong order books and greater operational preparedness in the second year of the Covid will swell the top rated line for more than 600 Crisil-rated mid-sized enterprises in the engineering, procurement, and building (EPC) sector by 15 per cent this fiscal, the rating agency stated on Tuesday. The anticipated development will be up from about 10 per cent fall last fiscal. The aggregate income of these 600 businesses (with income significantly less than Rs 1,000 crore in the prior FY) in road building, industrial and industrial buildings, irrigation, and allied activities was estimated to be Rs 70,000 crore for the last fiscal year.
However, the overall performance of these EPC businesses is probably to be curbed in the initially quarter of the existing fiscal year sequentially as the nation fights the second Covid wave along with challenges such as the slowdown in project execution and labour migration. Nonetheless, the influence will be significantly less serious from last year provided that “activities had ground to a halt amid a nation-wide lockdown in the first quarter of last fiscal,” Crisil stated. Importantly, the government had exempted the building sector from lockdowns so far this fiscal even as on-web-site remain arrangements for labourers and pandemic-associated precautions have lowered migration to about 20 per cent this year so far, it added. Further, most project web-sites are in non-urban areas, which have been significantly less impacted by the pandemic compared with the urban places.
Nonetheless, representative of building businesses differed from the projected development. “There seems to be a misconception as everything seems to be in a downturn. The labour is not available while the prices for steel, cement, etc., have been going up without any reason. What you will do with the order book if nothing is moving at the site. Practically, it is not only 20 per cent of workers that are going back. There is a mass labour movement from cities like Mumbai. But it is true that businesses are more prepared this year from last year and there can be some changed behaviour,” Raju John, Director General, Builders’ Association of India told TheSpuzz Online.
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The EPC segment has witnessed enhanced backing from the government. For instance, projects awarded by the National Highways Authority of India and the Ministry of Road Transport and Highways had enhanced to about 10,500 km last fiscal year from 8,500 km in the fiscal year 2020. Moreover, projects worth Rs 111 lakh crore have been announced beneath the National Infrastructure Pipeline and would be carried out more than 5 fiscals by way of 2025. While industrial capital expenditure was deferred and true estate projects had slowed last fiscal year, the industrial building activity is probably to revive this year.
“At over 2.5x of last fiscal’s revenue, order books were at their highest – at the beginning of any fiscal – since 2015, which offers high revenue visibility. The current operating rate of 70% should also help the sector gain growth momentum in the rest of this fiscal,” stated Rahul Guha, Director, CRISIL Ratings. Operating profitability for EPC businesses is also anticipated to stabilise at the historical typical of 11 per cent in the medium term. “Last fiscal, despite a sharp rise in prices of key raw materials such as bitumen, steel, diesel and petrol, pass-through clauses had limited the contraction in operating margin to 100 basis points (bps), with operating profitability estimated at around 10 per cent,” Crisil added.