The financial performance of roads and construction companies in the June 2024 quarter is expected to remain muted due to delay in obtaining clearances related to acquisition of land parcels, severe heat wave across various parts of the country, and slack in construction activities amid the general elections held during the quarter. Revenue of these companies is expected to grow by 2-7% year-on-year while net profit may increase by 3-10%. In the year-ago quarter, these companies had reported a strong profit growth of 33-53% while revenue had grown by 2-33%. In FY24, revenue and profit had increased in the range of 9-34% and 9-69% respectively.
According to the data shared by the Ministry of Road Transport and Highways (MoRTH), the construction of national highways fell by 12% year-on-year to 1,288 km in the first two months of FY25. This fall was largely because of weak awarding of projects. Historically it has been observed that the awarding of road projects slows down when there are general elections in a fiscal. A weak order flow coupled with a slow pace of project execution will culminate into muted revenue and profit growth for the sector.
Analysts estimate that construction companies which have relatively lower dependence on roads and have a highly diversified order book are likely to record better growth in revenues than their peers. PNC Infratech, J Kumar Infraprojects, H G Infra Engineering and KNR Constructions are a few companies which have order books across segments such as irrigation, water supply, solar and power transmission and mining apart from roads. Also, given their larger scale of operations, diversified order books and strong balance sheets, these companies do not face severe competition due to the entry of smaller companies. In recent months, with the entry of small players, competition for orders worth Rs 1,000 crore and below has increased. At present, the order intake of the well diversified companies provides revenue visibility of two-three years. Among well-placed construction companies, NCC, J Kumar Infraprojects, and H G Infra Engineering are estimated to show double-digit growth of 11-15% year-on-year in revenues for the June 2024 quarter helped by a new order wins during the quarter. In addition, they are likely to execute a relatively higher portion of their existing order book when compared with peers.
