Investmnet in construction sector may improve post polls

Mumbai: A stable government at the Centre after the general elections would improve the investment in the construction sector in the third quarter of the current fiscal, according to a report.

The report by credit rating agency ICRA said that inordinate delays in environmental clearances, high land acquisition cost, fuel supply shortages, precarious financial health of distribution utilities, tariff-related impediments for port sector and dwindling interest from private players have put the construction sector in a tight spot, 

However, until September 2014, execution challenges will persist and the revenue growth of construction firms will continue to remain muted on the back of poor performance of companies in the infrastructure sector,  it said.

"We expect revenue pressure to continue till the first half of the fiscal after which improvement in the investment cycle could be closely linked to the election outcome and perceived stability of a new government,"  said.

Companies engaged in sectors like roads, airports and power have not been able to achieve their set business targets, a PTI report quoting the rating agency’s observation, said.

"In fact, companies in the construction and infrastructure sectors form the highest proportion of CDR cases approved in FY13 and first half of FY14," the report said.

According to ICRA, NHAI was able to award just 15 per cent of its targeted 7,500 km amid dwindling interest from private players coupled with increasing difficulties in achieving financial closure; relatively less remunerative stretches in the offering and delays  in environmental clearances and land acquisition.

The power sector continues to face multiple concerns relating to mine development permissions, fuel supply shortages, financial health of distribution utilities, delays in finalisation of standard bidding documents for power procurement and lack of fresh power purchase bids by state discoms, it said.

In the ports sector, a total of 32 projects aggregating Rs 6,760 crore were awarded in FY13, a healthy growth over the three projects awarded in FY12, though this fell short of the planned target of 42 project awards for 2012-13.

Due to the declining trend in private participation, new project announcements during April-December 2013 have de-grown by 12 per cent on y-o-y basis after a massive 50 per cent y-o-y de-growth to Rs 4.7 trillion in FY'13.

"However, there is a silver lining in construction companies witnessing business opportunities in the railways, ports, urban infrastructure and airports sectors. Given the importance of the projects and stated focus on implementation, the dedicated freight corridor is expected to provide significant opportunities to construction companies," the report said.

Around 76 per cent of land for the Eastern DFC and 86 per cent for the Western DFC were acquired as of June 2013 translating into overall land acquisition progress of 82 per cent for the project, the report said.

As per the FY'14 targets, the government expects to undertake construction of around 51 low-cost airports in Tier 2 and 3 cities on cash contract basis in addition to eight on PPP basis.

"However, the dismal state of road project awards in FY'13 continued well into FY'14 especially in case of BOT projects.

 

NHAI expects to catalyse private sector interest in the sector by awarding projects on EPC basis wherein construction is funded by NHAI but undertaken by the private sector without assuming traffic risks," it said.