Revenue of road engineering, procurement and construction (EPC) companies will grow by 15 per cent this fiscal, compared with 5 per cent in the pandemic-marred last fiscal, according to Crisil.
Anuj Sethi, Senior Director, CRISIL Ratings Ltd, “With fewer restrictions on construction activities during the second wave, road project execution was not impacted as severely as during the first wave. This has manifested in healthy revenue growth of 37 per cent on-year in the first half of this fiscal, albeit on a significantly weak base of last fiscal. While overall revenue is expected to grow 15 per cent this fiscal, operating margins are likely to moderate to 14 per cent from 15.3 per cent last fiscal, primarily because of a sharp increase in prices of inputs such as bitumen, steel, cement and fuel.”
Road EPC contracts typically have price escalation clauses that mitigate the margin impact to an extent. However, the contractual escalations are linked to index prices and the actual increase in raw material prices can be steeper, which will affect the profitability.