India Ratings maintains negative outlook for construction sector
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
Jul 17, 2013
Source : The Hindu Business Line

 Faster execution of projects and improvement in liquidity situation is key to the sector 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 of the 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.

 The move to launch 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 tin exit norms will facilitate the sector players.

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