State roads account for 65-70 per cent of SME EPC road contractors’ revenue. The budgeted state road capex for FY 2021 was already 0.5 per cent lower than the revised FY 2020 estimates. Now, state funds are likely to be diverted towards the health and social sectors, with road capex spends declining further. Rural road projects, mostly executed directly by SME EPC contractors, will also face headwinds.
National highway projects, usually executed by larger players, with only a small proportion sub-contracted to SME EPC contractors, will also see a fall in the pace of construction.
April and May, crucial for road construction
before the monsoon sets in, will be lost amid lockdown
restrictions. As a result, SMEs, which account for about half of EPC road revenues, are expected to see a 12-13 per cent year-on-year negative growth in revenue in FY 2021. This, together with liquidity challenges, stretched working capital, and uncertainty in payments for under-construction projects, is expected to beat down their margins by 200-250 basis points, too.