ICRA RESEARCH SERVICES

Corporate Ratings

Indian Construction Sector Update

Execution concerns persist amid weak macro-environment

Anjan Deb Ghosh

+91 22 3047 0006
aghosh@icraindia.com
Contacts:
Rohit Inamdar
+91 124 4545 847
rohit.inamdar@icraindia.com
Shubham Jain
+91 124 4545 306
shubhamj@icraindia.com
Sameer Mehta
+91 22 3048 1075
sameer.mehta@icraindia.com
Suyash Gagpalliwar
+91 22 3047 0048
suyash.gagpalliwar@icraindia.com

OCTOBER 2012

Construction Sector Feature October 2012

Table of Contents
1. Executive Summary -------------------------------------------------------------------------------------------------------------------------------------------------------- 3
2. Trends in new projects and projects under implementation ---------------------------------------------------------------------------------------------------- 4
3. Trends for various infrastructure sub-segments -------------------------------------------------------------------------------------------------------------------- 6

Roads ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 6
Railways-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------8
Urban Infrastructure-------------------------------------------------------------------------------------------------------------------------------------------------------------------8
Aviation----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 9
Irrigation----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------9
Power--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------9
Ports--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------10

4. Aggregate performance of companies covered in ICRAs sample --------------------------------------------------------------------------------------------- 10

Year-on-Year Revenue Growth Trend--------------------------------------------------------------------------------------------------------------------------------------------10

Year-on-Year Profitability Trend---------------------------------------------------------------------------------------------------------------------------------------------------11

Company Section
1. Ahluwalia Contracts (India) Limited ---------------------------------------------------------------------------------------------------------------------------------- 14
2. BL Kashyap and Sons Limited ------------------------------------------------------------------------------------------------------------------------------------------ 17
3. Consolidated Construction Consortium Limited------------------------------------------------------------------------------------------------------------------- 20
4. ERA Infra Engineering Limited ----------------------------------------------------------------------------------------------------------------------------------------- 23
5. Gammon India Limited -------------------------------------------------------------------------------------------------------------------------------------------------- 25
6. Hindustan Construction Company Limited ------------------------------------------------------------------------------------------------------------------------- 28
7. IVRCL Limited -------------------------------------------------------------------------------------------------------------------------------------------------------------- 31
8. Madhucon Projects Limited -------------------------------------------------------------------------------------------------------------------------------------------- 34
9. NCC Limited ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 37
10. Patel Engineering Limited --------------------------------------------------------------------------------------------------------------------------------------------- 40
11. Pratibha Industries Limited ------------------------------------------------------------------------------------------------------------------------------------------- 42
12. Ramky Infrastucture Limited ----------------------------------------------------------------------------------------------------------------------------------------- 45
13. Sadhbhav Engineering Limited --------------------------------------------------------------------------------------------------------------------------------------- 48
14. Simplex Infrastructures Limited ------------------------------------------------------------------------------------------------------------------------------------- 51
15. Unity Infraprojects Limited ------------------------------------------------------------------------------------------------------------------------------------------- 54

ICRA LIMITED

Page 2

Construction Sector Feature October 2012

Executive Summary
The construction industry continues to face multiple challenges - capex deferrals by the private sector due to dwindling business confidence and stalemate in policy and
decision-making has resulted in muted new order inflows; execution of existing order-book has slowed down due to delays in land acquisition, obtaining clearances and
policy-level uncertainties that continue to plague key infrastructure sectors such as power, airports and ports; rising input and labour costs coupled with sluggish pace of
execution has resulted in lower fixed cost absorption and pressurized operating profit margins. Further, delays in realizing receivables and in work certification coupled
with the need to extend greater support to sub-contractors has elongated the working capital cycle and weakened cash-flows from core construction business. This,
coupled with the need to support the asset-ownership business has resulted in an increase in debt levels and dented net profit margins through increased interest costs.

Execution concerns have intensified evidenced by the elevated quantum of stalled projects and declining y-o-y growth rate of projects under implementation; this has
moderated the y-o-y revenue growth rates of construction companies. There is also a risk of protracted delays in government decision-making following the recent
exposs by the CAG. In this environment management commentary remains mostly cautious with regards to order inflows, revenue growth and future profitability.
Recognizing the need to kick-start investments in infrastructure the government has setup FY 13 targets for various subsectors such as roads, ports, power, railways and
civil aviation while this could increase pace of tendering, progress on actual execution would require the government to address the various issues that are currently
hampering execution such as delays in land acquisition and in obtaining clearances and approvals. While the government has taken certain positive measures including
relaxation in the land transfer policy for central-government owned lands and setting up a project clearance board for improving the pace of project clearances, the
steps taken thus far have not resulted in any significant improvement in pace of execution.
Going forward, opportunities for construction companies are expected from projects to be undertaken in the opportunities in railways, urban infrastructure particularly metros, airports and roads sectors. The PMO has specifically accorded high priority to big-ticket projects such as the Dedicated Freight Corridor (DFC) project
and has also indicated that adequate measures and follow-up would be undertaken to ensure speedy award and implementation of Public Private Partnership (PPP)
projects in the port sector. In the current environment, execution challenges are expected to persist and the revenue growth rates of construction companies will
continue to remain muted. Most construction companies have ventured into the asset-ownership space by undertaking PPP project under Build-Operate-Transfer (BOT)
mechanism through Special Purpose Vehicles (SPVs). Need to fund equity in such projects coupled with execution delays during the construction-phase is expected to
increase the level of support required from the parent construction company towards such SPVs. Further, project developers are also facing delays in achieving financial
closure for PPP projects due to increased due-diligence by lenders which is a result of weaker-than-projected performance of many operational PPP projects and
aggressive bidding done by the developers in the recent project awards. While many companies are actively seeking to raise cash through stake sale/dilution of projects
only a handful of such deals have fructified; consequently many construction companies have supported their developer businesses by raising debt on their own
balance sheets which has increased interest expenses and deteriorated their own financial profile.
Since December 2011, ICRA has downgraded ratings of 29 construction companies1. The key reasons for the downgrades included execution delays due to nonavailability of project sites, labour, inputs such as sand and pending clearances; marked increase in interest costs which, coupled with moderating revenues resulted in
significant decline in net profitability and consequent deterioration in debt coverage metrics; increasing equity commitments in developer business coupled with
inability to monetize assets in a timely manner; and stretched liquidity position due to increasing work-in progress and delays in realization of debtors resulting in
significantly increased working capital requirements.

Of approximately 120 accepted ratings as of December 2011

ICRA LIMITED

Page 3

Construction Sector Feature October 2012

Please contact ICRA to get a copy of the full report

CORPORATE OFFICE
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
REGISTERED OFFICE
th
1105, Kailash Building, 11 Floor,
26, Kasturba Gandhi Marg,
New Delhi 110 001
Tel: +91-11-23357940-50
Fax: +91-11-23357014

CHENNAI
Mr. Jayanta Chatterjee
Mobile: 9845022459
Mr. D. Vinod
Mobile: 9940648006
5th Floor, Karumuttu Centre,
498 Anna Salai, Nandanam,
Chennai-600035.
Tel: +91-44-45964300,
24340043/9659/8080
Fax:91-44-24343663
E-mail: jayantac@icraindia.com
d.vinod@icraindia.com

HYDERABAD
Mr. M.S.K. Aditya
Mobile: 9963253777
301, CONCOURSE, 3rd Floor,
No. 7-1-58, Ameerpet,
Hyderabad 500 016.
Tel: +91-40-23735061, 23737251
Fax: +91-40- 2373 5152
E-mail: adityamsk@icraindia.com

MUMBAI
Mr. L. Shivakumar
Mobile: 9821086490
3rd Floor, Electric Mansion,
Appasaheb Marathe Marg, Prabhadevi,
Mumbai - 400 025
Ph : +91-22-30470000,
24331046/53/62/74/86/87
Fax : +91-22-2433 1390
E-mail: shivakumar@icraindia.com

KOLKATA
Mr. Jayanta Roy
Mobile: 9903394664
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
Kolkata-700020.
Tel: +91-33-22876617/ 8839,
22800008, 22831411
Fax: +91-33-2287 0728
E-mail: jayanta@icraindia.com

PUNE
Mr. L. Shivakumar
Mobile: 9821086490
5A, 5th Floor, Symphony,
S. No. 210, CTS 3202,
Range Hills Road, Shivajinagar,
Pune-411 020
Tel : +91- 20- 25561194,
25560195/196,
Fax : +91- 20- 2553 9231
E-mail: shivakumar@icraindia.com

GURGAON
Mr. Vivek Mathur
Mobile: 9871221122
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
E-mail: vivek@icraindia.com

AHMEDABAD
Mr. Animesh Bhabhalia
Mobile: 9824029432
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585049/2008/5494,
Fax:+91-79- 2648 4924
E-mail: animesh@icraindia.com

BANGALORE
Mr. Jayanta Chatterjee
Mobile: 9845022459
'The Millenia', Tower B,
Unit No. 1004, 10th Floor,
Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
Tel: +91-80-43326400,
Fax: +91-80-43326409
E-mail: jayantac@icraindia.com

ICRA LIMITED

Page 4

Construction Sector Feature October 2012

ICRA Limited
An Associate of Moody's Investors Service
CORPORATE OFFICE

Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300; Fax: +91 124 4545350
Email: info@icraindia.com, Website: www.icra.in
REGISTERED OFFICE

1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50; Fax: +91 11 23357014
Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663
Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79)
2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231
Copyright, 2012 ICRA Limited. All Rights Reserved.
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such
information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.

ICRA LIMITED

Page 5