Strong order books, healthy execution blow for road EPC companies: Crisil

Strong order books and healthy execution of projects will cushion revenue blow for Engineering, Procurement and Construction (EPC) companies in the highways sector, Crisil Ratings said on Wednesday.

The operating profitability and credit quality of EPC companies will remain stable despite the coronavirus pandemic, it said.

"Moderation in overall revenue growth for road-building EPC companies will be limited to 5-8 per cent this fiscal despite a 16 per cent de-growth logged in the first half.

"This is because the players whose operations were impacted because of COVID-19-led lockdowns have seen good revenue recovery since the second quarter, with order booking riding strong on steady awarding by government agencies and operations back to near normal," Crisil Ratings said in a statement.

 

The pullback in revenue growth, together with continued prudent working capital management and healthy balance sheets will help keep credit quality of road EPC companies stable, it added.

The findings are based on an analysis of 15 large road EPC developers, which have a cumulative annual turnover of Rs 60,000 crore and account for 65 per cent of the sector's revenues.

This fiscal has seen a step-up in project awards by the Ministry of Road Transport and Highways and the National Highways Authority of India, reflecting the government's focus on infrastructure.

The pace of awarding has doubled, reaching 7,200 kilometres as of December.

"Also, issues around availability of labour and raw material have mostly been resolved, and most developers are now operating at pre-pandemic levels, up from 70 per cent of pre-pandemic levels at the end of June.

"Revenue growth for the June quarter had plunged 33 per cent on-year due to the pandemic-led disruption in operations," it said.