ICRA reduces revenue growth estimates of construction firms to 8-10% in FY25

Credit rating agency ICRA has reduced its revenue growth estimates for construction companies for FY25 to 8-10% from 12-15% projected earlier.

It said the growth momentum of construction companies would hit three-year lows in FY25, as construction activity has slowed down. 

The rating agency said this was due to the imposition of the election 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 which impacted construction activity (primarily for road players). 

Previously, in FY23 and FY24, the construction entities had witnessed YoY growth of 22% and 19%, respectively.

Suprio Banerjee, vice president and co-group head - Corporate Ratings, ICRA, said: “The fresh order inflows were modest in H1 FY25, mainly due to the impact of the general elections and the monsoons. Though the order-awarding activity has picked up from Q2 FY25 onwards, the order inflows in FY25e are likely to trail those seen in FY24.” 

“Order inflows in the road segment have remained muted during the last four quarters; however, in other segments like urban transportation [including metro], drinking water and sewage treatment projects, the inflows remain healthy,” he remarked.

“Within the various sub-segments, because of a relatively moderate order book, the entities focused on Central Government road projects are expected to witness pressure on revenue in FY2025, thereby dragging the overall growth rate,” he emphasised.

ICRA said owing to the heightened competition, the operating margins of the industry moderated from 12% during FY22 to 11.1% in FY24, and it is projected to remain range-bound around 10.5%-11% in FY25 and FY26.