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Construction stocks jump as Ind-Ra maintains stable outlook for construction sector for rest of FY20

India Ratings and Research (Ind-Ra) has maintained a stable outlook for the construction sector in India for the rest of FY20 mainly on account of the current order book position.

Larsen & Toubro is currently trading at Rs. 1435.50, up by 3.60 points or 0.25% from its previous closing of Rs. 1431.90 on the BSE. The scrip opened at Rs. 1436.00 and has touched a high and low of Rs. 1442.00 and Rs. 1423.20 respectively. So far 24217 shares were traded on the counter.

NCC is currently trading at Rs. 54.05, up by 0.50 points or 0.93% from its previous closing of Rs. 53.55 on the BSE. The scrip opened at Rs. 54.00 and has touched a high and low of Rs. 55.05 and Rs. 53.40 respectively. So far 2340123 shares were traded on the counter.

Jindal Saw is currently trading at Rs. 86.10, up by 0.55 points or 0.64% from its previous closing of Rs. 85.55 on the BSE. The scrip opened at Rs. 85.85 and has touched a high and low of Rs. 86.75 and Rs. 85.70 respectively. So far 12287 shares were traded on the counter.

The agency has maintained stable outlook despite a slowdown in awarding projects in the transport and irrigation sectors. It also said that most construction firms are likely to experience healthy revenue growth and stable credit metrics over H2 FY20, supported by the strength of their existing order books.

Rating agency has noted that the likely slowdown in the new order inflows in the roads, bridges and highways and the irrigation segments would be compensated by strong order inflows from the urban infrastructure including housing, metro, water supply, sewage treatment and railways segments. It also opined that construction companies focused on road EPC sub-segment are likely to experience minimal developments with respect to their ratings during H2 FY20, as they would continue to execute their order book in a timely manner, supported by their strong execution capabilities and timely realisation of receivables, resulting from the presence of strong counter parties in their order book.

Ind-Ra further said the overall improvement in the financial profile of construction companies are more likely to be determined by their ability to manage their existing working capital resources in a prudent manner, given the working capital- intensive nature of the sector and the increasing risk- averse approach adopted by lenders towards the construction sector. However, it noted that the revenue visibility of these companies might be affected by the slow pace of awarding for road projects, which remains a key rating monitorable.

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