Softer commodity prices to lift road units' margins: CRISIL SME Tracker

Small and medium enterprises (SMEs) in the roads sector are expected to see revenue growth of 5-10 per cent in 2023-24 (FY24), a tad short of an estimated 8-12 per cent in FY23. 
 

Their margins, which were squeezed 150-250 basis points (bps) owing to soaring commodity prices and contracted to 6-8 per cent in FY23, are expected to spurt 100-200 bps in FY24, as the prices of key commodities cool.
 

Liquidity conditions are also expected to improve, as measures under the Atmanirbhar Bharat scheme have been extended until March 2024, and payments by state authorities also become more punctual.
 

Capital expenditure (capex) in the road sector, comprising national highways, state roads, and rural roads, is therefore expected to grow 10-15 per cent this fiscal, driven by higher execution.
 

SMEs have a 40- 45 per cent share in overall sector revenue. However, in state roads, which account for about 50 per cent of overall road sector capex, SMEs command a share of about 60 per cent. Indeed, this segment accounts for 60-70 per cent of the overall revenue of road-sector SMEs.
 

State spending on roads grew 21 per cent in FY22 on a low base of the pandemic-hit previous fiscal, and is estimated to have grown a further 10-13 per cent in FY23, largely in line with growth in budgetary outlay. 
 

In FY24, state spends are expected to rise 8-12 per cent, as their percentage achievement of budgetary allocations are expected to be largely in line with the historical average.