Recovery on the Way: Financial results of key highway developers

Financial results of key highway developers

The year 2020-21 was a slow one for highway construction in India due to the enduring grip of Covid-19 on the country. Acute labour shortage due to heavy migration adversely impacted highway construction. The period from April to June, which is considered the golden period for construction, was particularly bad during 2020-21. Despite a slow start, highway contractors and developers were able to construct 13,327 km of national highways during 2020-21, a 30 per cent increase from the 10,237 km constructed in 2019-20.

The pandemic also had a strong bearing on the finances of sector players, primarily on account of toll suspension. However, the gradual lifting of restrictions has helped in the recovery of toll collections. The financial closure of public-private partnership-hybrid annuity model road projects became difficult due to falling interest rates. The slow transmission of policy rate cuts to bank lending rates further squeezed the cash flow margins of developers.

India Infrastructure Research tracked select financial indicators of 13 key road developers/contractors…

Order book and capital structure

The order books of the players reflected diversified portfolios. Since most of the companies primarily work on highway construction, and operations and maintenance, a major portion of their overall order book pertains to the road sector. With regard to the capital structure, although most of the companies are earning profits, they remain highly debt laden. The debt-to-earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio is a measure of a company’s creditworthiness. A value above 5 is considered a cause for concern for investors and rating agencies. In 2020-21, companies such as IRB Infrastructure Developers Limited and L&T Limited posted debt-to-EBITDA ratios above the average of the seven firms for which complete financials are available for the year.

Income, expenditure and profits

With regard to the total income, the majority of the companies under consideration registered an overall decline during 2020-21. Of the seven companies for which financials are available till December 2020, only Gayatri Projects reported a marginal year-on-year increase in total income.

That said, all the companies for which Q4 2021 data is available registered a year-on-year increase in their income in the final quarter of 2021. This can be attributed to the economic revival witnessed after the first wave of the Covid-19 pandemic. Private players that were impacted due to Covid-19-led lockdowns are now witnessing a good recovery. Their order books are rising steadily with projects being awarded by government agencies and operations coming back to near normal.

The data on total expenditure also shows a similar trend. Companies such as IRB Infrastructure Developers, J. Kumar Infraprojects and Larsen & Toubro recorded a low overall expenditure in financial year 2021 as compared to financial year 2020, but a significantly high expenditure in Q4 of 2020-21 as compared to Q4 of 2019-20. For developers such as Welspun Enterprises, Sadbhav Engineering and MEP Infrastructure Developers, expenditure during the first nine months of financial year 2021 registered a year-on-year decline of more than 10 per cent.

Of the six companies for which financials are available till March 2021, three companies – IRB Infrastructure Developers, J. Kumar Infraprojects and Larsen & Toubro – witnessed a year-on-year decline in their net profit during 2020-21, while companies such as KNR Constructions and H.G. Infra Engineering reported a significant year-on-year increase in their net profit during the year. During the period of April-December 2021, Sadbhav Engineering witnessed a 29 per cent year-on-year increase in net loss, whereas Ashoka Buildcon registered an exceptional increase in net profit from Rs 137 million in the first nine months of financial year 2020 to Rs 1.2 billion during the corresponding period in financial year 2021. MEP Infrastructure Developers also converted its net loss of Rs 384.5 million in the first nine months of financial year 2020 to a net profit of Rs 85.8 million during the corresponding period in financial year 2021.


Overall, the outlook for road developers seems optimistic. The revival of revenue growth, proper working capital management and healthy balance sheets will help keep the credit quality of highway developers stable. Although due to the second wave of the Covid-19 pandemic, road construction has again lost momentum as compared to the second half of the previous fiscal, it is not likely to have a material bearing on the growth of the current fiscal. While only 311 km of national highway projects were awarded in April 2021, it is unlikely to deter the government from awarding more projects during the full fiscal as the ramp-up typically occurs in the fourth quarter. The national highway construction peak of 853 km in April 2021, as against a peak of 2,189 km in March 2021, marked a steep decline of 61 per cent. That said, the rate of construction stood at 28 km per day, which is four times higher than the construction rate in April 2020, despite endemic labour shortage.

EPC contractors have learnt lessons from the first wave, and are ready to scale up once the economy opens up again. The less stringent, localised lockdowns this time around have had a softer impact on national highway traffic, which saw only a 15 per cent month-on-month decline in April 2021. It was supported by the implementation of FASTag, which eliminated toll leakages. According to CRISIL, large road EPC players are likely to witness strong order books and a recovery in revenues with a 15-20 per cent growth in 2021-22.

Rolica Bhatnagar