COVID-19-induced lockdown has hit economic activities across various sectors, road-building engineering, procurement and construction (EPC) is no different. According to a report, due to this scenario, revenue of road-building engineering, procurement and construction (EPC) companies is expected to de-grow by 8-10 per cent in FY 2020-2021.
According to CRISIL, between fiscals 2017 and 2020, there was a 17 per cent growth. This report by CRISIL was based by analysing over 300 CRISIL-rated EPC companies with rated debt of Rs 51,000 crore.
Sachin Gupta, Senior Director, CRISIL Ratings, said, “Typically, in EPC projects, maximum execution and billing is done in March. However, the lockdown that began from March 22 halted work in the crucial last days of last fiscal and has continued to do so this fiscal. The pick-up in execution and mobilisation after the lifting of the lockdown will be gradual. The upshot would be revenue degrowing 8-10 per cent and margins for EPC companies being hit by approximately 200 bps in fiscal 2021.”
In the last two fiscals, there was a drop in contracts awarded by National Highways Authority of India (NHAI) which hit the business already. “However, this fiscal, the slowdown in execution due to lockdowns and the resultant labour shortage is expected to push revenue growth into negative territory.”
During the lockdown, these companies had no execution and hence no income in April, but had to meet their fixed costs which are primarily employee and establishment costs. “These account for 12 per cent of the topline, and with sites operating at 50 per cent efficiency in most of May, too, it would mean operating margins would decline approximately 200 bps to around 12 per cent this fiscal.“
According to CRISIL, only after monsoon the operations will stabilise as migrant workers return to project sites. The trajectory of recovery will therefore depend on the time taken to contain the pandemic, state the agency.
Sushmita Majumdar, Director, CRISIL Ratings, said, “As much as 90 per cent of the debt of the 300 CRISIL-rated road EPC companies analysed has an investment grade rating – BBB category and above. Their order books remain strong at around 2.2x of their last year’s revenues and liquidity is also stable, with bank limit utilisation averaging approximately 70 per cent . Even assuming the receivable cycle stretching by an additional 1-1.5 months, they are adequately placed to weather the current situation, thus keeping their credit profiles stable. But the remaining 10 per cent may see some credit pressure because of liquidity pressures.”
