Liquidity related concerns and execution challenges continue to impact the infrastructure sector in the country, according to India Ratings & Research.
Faster execution of projects and improvement in the liquidity situation are key to the sector keeping up its momentum. But the impact of these challenges is expected to intensify in the near term.
India Ratings & Research has maintained a negative outlook on the Indian construction sector for the second half of 2013. Construction companies have concentrated more on the execution of existing orders than over-bidding.
Delays in obtaining statutory clearances and increasing working capital needs continue to put pressure on the financial profile of the companies in this sector.
This has been compounded by the inability to pass on input cost increases, which has resulted in a fall in their margins. This is also likely to continue in the near term.
For most construction companies, working capital cycles continue to be stretched on account of delays in the certification of works completed by construction companies.
Higher debt requirement for executing large order books and to fund working capital, along with high interest rates have led to further deterioration of the credit metrics of the companies.
Given the downward pressure on margins and higher requirements for funds, the agency expects that credit metrics may worsen further in the near term.
Improvement in liquidity leading to access to funds and governmental policy actions addressing the factors hindering execution of works would have a positive impact on the sector.
Restricting order books to a manageable level, especially by fund starved companies, can lead to liquidity easing and improvements in credit metrics.
The move to launch an infrastructure debt fund is likely to give the long term capital and also enable in financial closure of infrastructure projects.
In addition to these if the proposed changes in the road sector relating to environment and also providing flexibility in exit norms will facilitate the sector players.