The financial performance of roads and construction companies in the June 2024 quarter is expected to remain muted due to delays in obtaining clearances related to land acquisition, a severe heatwave across various parts of the country, and a slowdown in construction activities amid the general elections held during the quarter.

Revenue for these companies is anticipated to grow by 2-7% year-on-year, while net profit may increase by 3-10%. In the same quarter last year, these companies reported strong profit growth of 33-53% and revenue growth of 2-33%. In FY24, revenue and profit increased in the range of 9-34% and 9-69%, respectively.

According to data from the Ministry of Road Transport and Highways (MoRTH), the construction of national highways fell by 12% year-on-year to 1,288 km in the first two months of FY25. This decline was largely due to weak project awards. Historically, the awarding of road projects slows down during general elections in a fiscal year. A weak order flow coupled with a slow pace of project execution will lead to muted revenue and profit growth for the sector.

Analysts estimate that construction companies with a lower dependence on roads and a highly diversified order book are likely to record better revenue growth than their peers. Companies such as PNC Infratech, J Kumar Infraprojects, H G Infra Engineering, and KNR Constructions, which have order books across segments like irrigation, water supply, solar and power transmission, and mining in addition to roads, are expected to perform better. Given their larger scale of operations, diversified order books, and strong balance sheets, these companies do not face severe competition from smaller companies.

In recent months, the entry of smaller players has increased competition for orders worth Rs 10 billion and below. Currently, the order intake of well-diversified companies provides revenue visibility of two to three years. Among the well-placed construction companies, NCC, J Kumar Infraprojects, and H G Infra Engineering are estimated to show double-digit growth of 11-15% year-on-year in revenues for the June 2024 quarter, aided by new order wins during the quarter. Additionally, they are likely to execute a relatively higher portion of their existing order book compared to their peers.

(Source: ET)