Driven by government spending, the order book of 50 companies constructing highways in EPC mode may touch Rs 1 lakh crore and their topline is set for 15 per cent growth this fiscal, rating agency Crisil has said as per the PTI report.
Driven by the Ministry of Road Transport and Highways (MoRTH) and the National Highways Authority of India (NHAI), over 80 per cent of the highway projects in the past three years have been bid out under the hybrid or engineering, procurement, construction (EPC) model, Crisil said in a statement.
"Not surprisingly, 50 road EPC companies rated in the investment grade by Crisil, have benefited from the trend and delivered 20 per cent compounded annual growth in revenue in the past three years," it said.
This, along with better working capital management and capital structure, sharp focus on execution, and judicious bidding have led to a significantly improved credit ratio - or ratio of upgrades to downgrades - at 2.0 last fiscal, up from 0.11 in fiscal 2014.
Eighty per cent of these companies have revenues below Rs 1,000 crore.
In contrast, many large diversified EPC players are yet to wade out of the credit profile morass they entered in the past because of aggressive bidding, leveraged balance sheets, policy bottlenecks and a sluggish economy, it said.
Sachin Gupta, Senior Director, Crisil Ratings said: "Crisil-rated companies are expected to maintain their revenue growth momentum this fiscal, fuelled by a strong order book of Rs 85,000 crore (as of fiscal 2017 end), and expected order- book-to-revenue ratio of 3 times this fiscal, which provides good topline visibility."
The combined order book of these 50 companies is likely to touch Rs 1 lakh crore this fiscal, driven largely by increased government spending in the roads sector, it said.
Sushmita Majumdar, Director, Crisil Ratings said, "Given their demonstrated project execution capabilities and prudent management policies, Crisil-rated companies are expected to run a tight ship in the medium term. But timely availability of 'right of way' and other approvals would be critical to the pace of project execution over the medium term."
Continued prudence in bidding, low gearing and healthy working capital management would be key, it said adding, the government's thrust on the infrastructure sector and policy measures will come in handy too.