Order book of Road Companies may to cross Rs 1 lakh crore this fiscal: CRISIL
Driven by government spending, the order book of top companies constructing highways in EPC mode may touch Rs 1 lakh crore and their top line is set for 15 per cent growth this fiscal, rating agency CRISIL has said. They are driven by the Ministry of Road Transport and Highways and the National Highways Authority of India, over 80 per cent of the highway projects. In the past three years, they have been bid out under the hybrid or Engineering, Procurement, Construction (EPC) model. EPC companies rated in the investment grade by CRISIL have benefited from the trend and delivered 20 per cent compounded annual growth in revenue in the past three years. The better working capital management and capital structure, sharp focus on execution, and judicious bidding have led to a significantly improved credit ratio - or ratio of upgrades to downgrades - at 2.0 last fiscal, up from 0.11 in fiscal 2014.
80% of these companies have revenues below Rs 1,000 crore. Large diversified EPC players are yet to come out of the credit profile morass they entered in the past because of aggressive bidding, leveraged balance sheets, policy bottlenecks and a sluggish economy. The companies are fuelled by a strong order book of Rs 85,000 crore and are expected to have an order- book-to-revenue ratio of 3 times this fiscal, which provides good top line visibility. The combined order book of these 50 companies is likely to touch 1Lakh Crore this fiscal. Given their demonstrated project execution capabilities and prudent management policies, the companies are expected to run a tight ship in the medium term. Continued prudence in bidding, low gearing and healthy working capital management would be important key, and the government's thrust on the infrastructure sector and policy measures is a boon for them.