India Ratings and Research has maintained a stable outlook on the construction sector for financial year 2018-19 on accelerated revenue growth due to increased spending by the Centre.
According to the rating agency, a further improvement in the rating can be expected during the next fiscal as companies continue to record higher EBITDA (earnings before interest, tax, depreciation and amortisation) and generate free cash flow.
Giving a sector view, India Ratings noted that order inflows are may continue to improve in the next fiscal driven by higher orders from the transportation segment, led by an increase in engineering, procurement and construction contracts for roads as well as urban infrastructure projects.
The agency expects revenue and EBITDA margins for the sector to continue to grow and cash flows to remain positive in fiscal 2018-19, barring the blip in fiscal 2017-18 due to the transitional impact of the implementation of the Goods and Services Tax (GST).
"Capex of construction companies is likely to increase as asset utilisation peaks and technical specification for contracts change," it said.
Accordingly, the agency has "maintained a stable outlook on the construction sector for 2018-19, underpinned by accelerated revenue growth due to increased spending by the government."
"Credit profile of some of the issuers is at the higher end of the rating level, reflecting sufficient headroom to maintain the rating through the cycle," it added.
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