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Revenue growth estimate for construction players reduced to 8-10% for FY25: ICRA
Jan-07-2025

Credit rating agency ICRA in its latest report has said that the Model Code of Conduct in Q1 FY25 and an elongated monsoon period, along with milestone-based billing (against monthly billing till March 2024) in Q2 FY25 impacted construction activity (primarily for road players). This is reflected in the modest revenue growth of around 1.5% in year-on-year (YoY) terms in H1 FY25 for ICRA's sample set of 19 companies (with combined turnover of Rs 1.28 trillion in FY24). 

ICRA expects the execution pace of Indian Construction entities to pick up in H2 FY25 and operating income (OI) to grow on a YoY basis by 8-10% in FY25e and 10-12% in FY26e, though easing from the long-term CAGR of around 15% for the FY18-FY24 period. Previously, in FY23 and FY24, the construction entities had witnessed stellar YoY growth of 22% and 19%, Respectively.

The competition has remained high across sub-segments like railways, road as well as urban infrastructure in recent years. Particularly, road projects awarded by the MoRTH/NHAI have witnessed greater competitive pressure, which is also reflected in the majority of the bids awarded at a sizeable discount compared to the authority’s base price. The competition for other sectors (Metro, Railways, and Water Supply & Sanitation) has also increased, with new entrants trying to diversify their order book. Owing to the heightened competition, the operating margins of the industry moderated from 12% during FY2022 to 11.1% in FY2024, and ICRA projects them to remain range-bound around 10.5% - 11.0% in FY2025e and FY2026e. 


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