Revenue of road-building EPC companies is expected to de-grow 8-10% this fiscal with the Covid-19 pandemic-driven lockdowns severely curtailing activity.

Labour shortage, slowdown in execution of road projects due to lockdown may cause revenue growth of engineering, procurement and construction (EPC) firms to fall into the low, double-digit negative territory, rating agency Crisil said on Tuesday.

“Revenue of road-building EPC companies is expected to de-grow 8-10% this fiscal with the Covid-19 pandemic-driven lockdowns severely curtailing activity. That compares with a 17% growth between fiscals 2017 and 2020,” Crisil said, adding that revenue growth of these companies was expected to taper to some extent in the current fiscal due to the pandemic.

“The lockdown that began from March 22 halted work in the crucial last days of the last fiscal and has continued to do so this fiscal. The pick-up in execution and mobilisation after the lifting of the lockdown will be gradual. The upshot would be revenue degrowing 8-10% and margins for EPC companies being hit by around 200 bps in fiscal 2021,” said Sachin Gupta, senior director, Crisil Ratings.

Given the lockdown, these companies had no execution and hence no income in April, but had to meet their fixed costs that account for around 12% of the top-line, and with sites operating at around 50% efficiency in most of May too, it would mean operating margins would decline around 200 bps to around 12% this fiscal. Operations are likely to stabilise after monsoon as migrant workers return to project sites.

However, the slowdown is unlikely to materially impact the credit profiles of these companies, primarily because of their robust balance sheets. Efficient management of working capital and liquidity, though, will be key to tide over the current situation.