The Indian Construction Rating Agency (ICRA) predicts that the construction industry’s operating margins will remain range-bound at 10.5-11.0% in FY2025 and FY2026, supported by stable input prices and operational leverage benefits. However, this represents a moderation from the 13-14% levels seen in FY2021, as.
Heightened competition across sub-sectors forces contractors to accept tighter margins. The sector is expected to deliver 8-10% YoY growth in operating income (OI) for FY2026, but profitability remains constrained. Road projects awarded by MoRTH/NHAI have seen particularly sharp margin compression, with contracts.
Being finalized at substantial discounts to base prices. Similar competitive pressures are evident in metro, railways, and water infrastructure segments as new entrants vie for market share The Model Code of Conduct (MCC) in Q1 FY2025, coupled with an extended monsoon and the transition to milestone-based billing.
in Q2 FY2025, significantly hampered construction activities, particularly in road projects. Following a modest 1.5% YoY growth in H1 FY2025, execution accelerated in Q3 FY2025 and maintained momentum in Q4 FY2025. Despite this recovery, the overall OI growth for ICRA’s sample set in FY2025 is estimated at a subdued 1-3%.
Working capital pressures may partially offset margin stability, with the expiration of Atmanirbhar Bharat relief measures extending the cash conversion cycle in FY2025, requiring higher debt levels to fund operations. ICRA maintains a stable outlook on the construction sector, with road-focused contractors facing greater pressure.
With fresh order inflows remaining modest during the first nine months due to the on-year growth in H1 impact of the General Elections. compared to diversified growth players in urban of on-year growth in H1 FY2025 approximately 3.5 times as of March 31, 2025 infrastructure, renewables, and water growth projects.
ICRA forecasts that the Indian construction industry’s operating margins will remain stable at 10.5–11.0% through FY2025 and FY2026. This stability is attributed to relatively steady input costs and benefits from operational leverage. However, this marks a decline from the 13–14% margins observed in FY2021, primarily due to intensified competition across various costs and benefits stability sub-sectors.
The sector is anticipated to experience a year-on-year operating income (OI) growth of 8–10% in FY2026. This growth is supported by a robust order book, with ICRA Elections. compared to diversified players in urban infrastructure, renewables, and water projects. estimating an aggregate order book-to-operating income ratio.
Despite these positive indicators, the industry faces challenges. The Model Code of Conduct (MCC) in Q1 FY2025, an extended monsoon period, and a shift to milestone-based billing in Q2 FY2025 significantly impacted construction activities, especially in road projects. Consequently, the sector witnessed a modest 1.5% year.
Competitive pressures are particularly pronounced in road projects awarded by the Ministry of Road Transport and Highways (MoRTH) and the National Highways Authority of India (NHAI), where contracts are often finalized at substantial discounts to base prices. Similar trends are observed in metro, railways, and water infrastructure segments, as new entrants strive to diversify their order books.
The expiration of Atmanirbhar Bharat relief measures has elongated the working capital cycle for players in FY2025. While debt levels are expected to rise to support higher working capital requirements, operational leverage benefits are projected to maintain adequate interest coverage ratios, estimated at 3.6–3.9 times in FY2026.
In summary, while the Indian construction industry is poised for steady growth with stable margins, it must navigate challenges such as heightened competition and evolving billing practices to sustain its performance in the coming fiscal years ICRA has projected that operating margins for the Indian construction industry steady in the range of 10.5–11% through FY2026.
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