Companies such as Larsen & Toubro, GMR and Reliance Infrastructure among others are gearing up for heavy tendering activity till January, industry executives said. Orders in the first half of 2018-19 had been lacklustre and government agencies, particularly the National Highways Authority of India, may now step up the activity in coming months.
“With elections around the corner, most companies expect hectic bidding over the next quarter; they expect a lull in ordering post January 2019 and hence intend to shore up order books before that.
With hefty bid pipeline across segments like roads, buildings, airports, urban infra among others, revenue visibility for our coverage universe, which is already robust (book-to-bill ratio at 4.4 times), is set to improve further,” Edelweiss said in a report.
Government contracts have become the main source of orders for most infrastructure and construction companies as private sector investment continues to be muted. But ordering activity by the government and its agencies was subdued in the first half of the current fiscal year, with construction orders declining for the first time in the last 12 months to a low of Rs 18,200 crore in September, down 30% on year.
New tender announcements have also remained low.
NHAI could be the key driver for the sector with a robust order pipeline of jobs to be given on engineering, construction and procurement basis.
While states have gone slow on road projects, they are expected to finalise the 93 irrigation projects, to be executed on a priority basis under the Pradhan Mantri Krishi Sinchai Yojana and for which the National Bank for Agriculture and Rural Development has approved?65,635 crore. Industry is also looking forward to some of the airport projects being finalised.
Companies may be keen to bag as much work as they can, given the possible slowdown in orders once the country gets into the election mode. However, some from the industry worry about pricing pressure amid competition. Some others feel capacity constraint would keep companies under check.
“Certainly, there would be competition for orders but most construction companies have attractive orderbooks and would need to ramp up their capacity to deliver more. There is a capacity constraint and its unlikely there would be intense price war,” Manish Agarwal, PwC India Capital Projects & Infrastructure leader, told ET.
According to data compiled by IDFC Securities, as on October 15, NHAI had 115 projects worth Rs 86,410 crore under various stages of bidding. Of these, EPC projects comprised 60% and hybrid annuity model projects the remaining 40%.