Infrastructure push will prop up EPC road contractors: CRISIL SME Tracker

Small and medium enterprises (SMEs) engaged as road contractors in the engineering, procurement and construction (EPC) segment are expected to see revenues rebound by 10-15 per cent year-on-year (YoY) in the current fiscal year (FY22), benefitting from sharper government focus on infrastructure to revive the economy and the low base of last fiscal, which had logged a 5-10 per cent decline.

Higher spending by states, which account for 60-65 per cent of SME revenues, will lead the improvement. States have announced 25 per cent YoY growth in their budget estimates for roads this fiscal year.

The second wave of Covid-19 does pose a downside risk to the estimates, with funds diverted towards health care expenditure and momentum slowing in April and May as labor availability at construction sites was only 65-75 per cent.

Operating margins, too, are expected to rebound to FY20 levels as construction and revenue growth pick up, after having declined 100-200 bps last fiscal due to fixed costs incurred by the players. As things stand, SMEs account for 35-45 per cent of the roads and highways sector overall.

Source: Business Standard